r^^ 


Digitized  by  the  Internet  Arciiive 

in  2007  witii  funding  from 

IVIicrosoft  Corporation 


http://www,arcliive.org/details/apportionmentoflOOdaniricli 


The  Apportionment  of  Loss 


AND 


Contribution  of  Compound 
Insurance 


A  CLEAR  EXPLANATION  OF  THE  VARIOUS 
RULES,  WITH  EXAMPLES 


W.  H.  DANIELS 

ADJUSTER 

CHICAGO 


Third 

Revised   Edition 

1913 


PUBLISHED    BY 

The  Rough  Notes  Co. 

Indianapolis,  Ind. 


^3 


DEDICATORY. 

My  father,  Henry  J.  Daniels,  and  my  mother,  dur- 
ing the  early  years  of  their  married  lives,  resided 
on  a  farm  in  a  sparsely  inhabited  section  of  the 
country,  where  the  land  was  covered  with  large 
trees;  and  from  the  products  obtained  off  of  a  small 
clearing  on  this  farm — the  results  of  much  hard  labor 
and  exposure  to  inclement  weather — they  provided 
for  the  family  and  gave  us  plenty  of  plain  and  sub- 
stantial food  to  eat,  suitable  clothes  to  wear  and  a 
comfortable  place  to  live. 

With  many  sacrifices  and  deprivations  on  their 
part,  made  with  that  unselfishness  which  showed  the 
extent  of  the  love  it  is  possible  for  a  father  and 
mother  to  have  for  a  child  and  the  interest  they  took 
in  the  success  of  their  children,  they  made  it  possible 
for  me  to  have  the  opportunities  to  obtain  an  educa- 
tion, not  within  the  reach,  during  my  school  days, 
of  the  average  country  boy. 

I  feel  that  to  them,  in  a  very  great  degree,  if  not 
entirely,  I  owe  whatever  success  I  have  attained  or 
met  with,  and  in  this  way  I  wish  to  express  and 
hope  to  show  my  full  appreciation  of  what  they  have 
done  for  me  and  made  it  possible  for  me  to  do  for 
myself.  Therefore,  with  that  love,  respect  and  rever- 
ence due  a  loving  and  unselfish  father  and  mother 
by  a  son,  I  dedicate  to  them  this  work  with  what- 
ever merit  it  contains. 

W.    H.    DANIELS. 


PREFACE  TO  THIRD  EDITION. 

The  first  edition  of  this  work  was,  in  part,  written 
by  me,  as  a  reply  to  a  letter  received  from  my  friend, 
W.  H.  Gillespie,  of  Nashville,  Tenn.,  who  at  that  time 
was  the  special  agent  of  the  Continental  Insurance 
Company,  of  New  York,  in  Tennessee. 

His  letter  was  as  follows: 


MR.   GILLESPIE'S    LETTER. 

Nashville,  Tenn.,  July  1,  1901. 
W.  H.  Daniels,  Esq.,  Special  Adjuster,  Continental  In- 
surance Company,  Chicago,  111.: 
Dear  Sir — I  am  in  need  of  some  information  as  to 
the  correct  method  of  making  the  apportionment  of 
the  insurance,  where  there  is  a  general  policy  cover- 
ing under  one  item,  property  which  is  specifically 
insured  in  other  policies,  as  two  or  more  items,  and 
trust  that  you  have  the  time  to  give  me  the  desired 
information.  I  find  the  opinion  of  many  of  the  ad- 
justers I  meet  is  that  the  specific  insurance  should 
first  be  exhausted,  and  the  general  insurance  pay 
the  remainder.  It  seems  to  me  that  if  this  custom 
were  practiced  at  all  times,  it  would  work  a  hard- 
ship on  the  company  carrying  the  specific  insurance, 
where  there  is  a  partial  loss  only,  on  the  goods  cov- 
ered by  such  specific  policy.  There  are  other  meth- 
ods resorted  to  for  an  apportionment  of  the  insur- 
ance in  these  cases,  but  none  of  them  seem  to  fairly 
and  completely  cover  the  conditions  which  exist  in 
this  class  of  claims,  though  all  of  them  seem  more 
equitable  and  more  in  accord  with  the  policy  than 
the  one  I  have  mentioned  as  being  in  general  use. 

I  have  in  mind  a  case  which  I  will  take  the  liberty 
of  submitting  to  you.  If  you  are  in  possession  of 
any  information  by  which  this  kind  of  loss  is  treated, 
I  hope  you  will  give  it  to  me. 

In  the  case  I  wish  to  submit,  the  Continental  in- 
sures $2,500  on  wheat,  $3,000  on  com  and  $2,000  on 
oats,  making  a  total  insurance  of  $7,500.  The  Aetna 
insures  $5,000  and  the  Home  $6,000  on  grain.  The 
sound  value  of  the  wheat  was  $8,000,  corn  $7,000  and 
of  oats  $10,000.  The  loss  on  wheat  was  $3,000,  corn 
$4,000  and  on  oats  $8,000.  What  would  be  the  proper 
way  to  apportion  this  insurance,  and  what  amount 
would  each  company  pay? 


545691 


If  you  should  have  in  your  possession  a  form  that 
would  facilitate  the  apportionment  of  such  losses,  I 
would  appreciate  your  furnishing  me  with  such  form 
and  any  information  you  think  will  aid  me.  Yours 
very  truly,       '  W.  H.  Gillespie, 

Special  Agent. 

The  second  edition  of  this  work  was  much  more 
complete  than  the  first,  and  considerably  larger,  but 
it  remained  in  the  form  of  a  communication. 

In  this  edition,  which  is  much  larger  than  the  sec- 
ond, I  have  changed  it  from  the  form  of  a  letter  and 
have  indexed  it,  showing  where  the  different  subjects 
treated  can  be  found;  also,  it  contains  an  index  of 
the  cases  cited  and  the  decisions  given  in  full. 

This  edition  is  necessitated  by  the  large  demand 
for  a  work  of  this  kind,  and  it  is  now,  as  a  book  of 
reference,  much  more  valuable  than  heretofore,  be- 
cause of  the  increased  size,  change  in  form  and  the 
indexes. 

AUTHOR. 
December  1,  1912. 


7"/ie  Apportionment  o/Loss  and 

Contribution  of  Compound 

Insurance. 


An  adjustment  problem  was  submitted  to  me  by  a 
friend,  where  the  assured  had  three  policies,  insur- 
ing him  against  loss  or  damage  on  grain;  some  of  the 
insurance  being  specific  and  some  compound. 

The  adjustment  shows  that  there  was  a  loss  of 
$3,000  on  wheat  where  the  sound  value  was  $8,000; 
that  corn  worth  $7,000  was  damaged  $3,000,  and  that 
the  loss  on  his  $10,000  worth  of  oats  was  $8,000.  You 
say  that  the  Aetna  policy  covered  $5,000  on  grain 
and  that  the  Home  policy  was  for  $6,000  on  grain, 
while  the  Continental  policy  covered  specifically 
$2,500  on  wheat,  $3,000  on  corn  and  $2,000  on  oats. 

If  I  were  to  make  the  proper  apportionment  of  the 
compound  insurance  and  figure  the  contribution  to 
be  made  by  each  company,  it  would  dispose  of  this 
claim,  but  if  I  should  do  that  and  nothing  more,  it 
would  not  explain  the  full  scope  of  the  rule  I  apply 
and  why  I  use  it  rather  than  some  one  of  the  other 
rules  now  being  used. 

That  I  may  show  my  position  on  this  class  of  claims 
and  explain  fully  the  reasons  I  have  for  insisting  on 
the  application  of  a  certain  rule,  prompts  me  to  go 
into  the  discussion  of  the  whole  question. 

We  may  not  fully  realize  the  importance  of  the 
proposition  which  was  submitted  to  me  for  my  con- 
sideration. It  involves  some  of  the  most  intricate 
questions  we  find  in  the  adjustment  of  losses,  and  for 
many  years  such  cases  as  you  have  submitted  have 
been  the  source  of  serious  anxiety  in  the  loss  de- 
partments of  the  various  insurance  companies,  and 
have  been  the  basis  for  a  large  number  of  contests 
before  the  courts.  The  insurance  men  of  the  past, 
and  of  to-day,  who  were,  and  are,  because  of  their 
interest  and  work  in  the  adjustment  of  loss  claims, 
thoroughly  posted,  have  not  agreed  and  do  not  agree 
what  each  company  should  pay  in  such  a  case  as 
you  have  submitted.  Similar  cases  have  received 
the  attention  of  the  courts  during  the  past  fifty  years. 


8  the!  AtrPORTIONMENT  OF  LOSS  AND 


and  it  is  safie  to  say  that  the  decisions  of  the  courts 
as  to  how  the  losses  in  this  case  should  be  appor- 
tioned among  the  companies  are  not  in  harmony. 

In  the  case  of  the  Howard  Insurance  Company  vs. 
Scribner,  which  was  before  the  Supreme  Court  of  the 
State  of  New  York,  the  judges  say  in  their  decision: 

"It  is  not  denied  that  the  division  must  be  entirely 
arbitrary,  and  the  different  methods  proposed  by  the 
parties  best  accord  with  their  respective  interests. 
Neither  has  cited  any  cases  where  such  a  thing  has 
been  done,  nor  mentioned  any  principle  by  which 
we  should  be  authorized  thus  to  modify  the  contract 
of  parties.  Something  like  it  was,  I  perceive,  once 
attempted  by  a  private  hand,  and  with  about  the  same 
success  as  has  attended  the  efforts  of  counsel  here." 

The  above  language  was  used  by  Judge  Cowen,  who 
wrote  the  opinion. 

Judge  Ostrander,  in  his  work  entitled,  "Ostrander 
on  Fire  Insurance,"  when  commenting  on  the  de- 
cision of  Judge  Cowen,  above  referred  to,  says: 

"Then,  as  now,  no  learning  of  the  courts,  no  in- 
genuity of  the  counsel,  can  explain  that  which  is 
essentially  inexplicable.  Cases  are  sometimes  pre- 
sented where  the  complications  defy  human  under- 
standing. When  this  occurs — when  reason  is  baffled 
and  mathematics  fail — arbitrary  action  becomes  a 
necessity.     The  knot  we  cannot  untie  must  be  cut." 

When  we  stop  and  carefully  consider  the  various 
rules  which  are  arbitrarily  applied  in  these  cases 
by  the  adjusters  of  to-day,  we  are  justified  in  asking 
the  question:  What  improvement  has  the  last  fifty 
years  produced  in  the  apportionment  of  the  insurance 
and  losses  in  such  cases  as  you  have  submitted? 
This  question  is  somewhat  simplified  now  by  the  use 
of  policies  which  contain  a  uniform  pro  rata  con- 
tribution clause. 

It  would  seem  that  from  the  various  decisions  which 
have  been  made  by  the  highest  courts  in  the  States, 
as  well  as  by  the  circuit  courts  and  Supreme  Court 
of  the  United  States,  in  this  class  of  cases,  some  rule 
of  apportionment  and  contribution  could  be  formed. 
When  these  cases  come  before  the  courts  for  a  de- 
cision, the  court  has  presented,  usually,  only  two 
propositions.  One  proposition  is  made  by  the  plain- 
tiff and  another  is  contended  for  by  the  defendant, 
and  the  rule  which  each  contestant  urges  for  the 
consideration  of  the  court  is  that  one  which  will  best 
serve  his  interest. 

The  courts  have  repeatedly  decided  that  if  the  as- 
sured in  such  cases  as  you  have  submitted  has  as 


CONTRIBUTION  OF  COMPOUND  INSURANCE.       9 

much  or  more  insurance  than  the  amount  of  loss, 
his  loss  must  be  paid  in  full,  and  no  rule  of  appor- 
tionment which  fails  to  pay  the  loss  in  full  will  be 
recognized  by  the  courts. 

The  decision  of  the  courts,  to  permit  no  rule  of 
apportionment  of  compound  insurance  to  be  used 
which  deprives  the  assured  of  his  full  loss,  when  his 
total  insurance  is  equal  to  or  greater  than  his  loss, 
should  not  be  treated  as  applying  to  cases  where 
there  is  no  compound  insurance.  This  rule  of  the 
courts  takes  effect  only,  when  it  becomes  necessary 
because  of  non-concurrent  insurance,  to  make  an  arbi- 
trary apportionment  of  compound  insurance.  When 
the  policies  fix  the  specific  insurance,  or  the  loss  lia- 
bility is  provided  for  in  the  policies  and  they  are  con- 
current, the  only  question  being  as  to  the  amount 
each  policy  will  contribute  to  satisfy  the  claim,  there 
is  no  arbitrary  apportionment  of  the  insurance,  and 
therefore  the  assured  is  not  entitled  to  the  applica- 
tion of  this  generous  rule  of  the  courts. 

Sometimes  these  cases  come  before  the  courts  be- 
cause the  companies  do  not  agree  on  a  rule  of  appor- 
tionment, and  the  assured  is  forced  to  ask  the  aid  of 
the  courts  to  effect  a  settlement;  but  generally  the 
assured  is  compelled  to  bring  suit  because  some  com- 
pany, or  companies,  insist  on  applying  a  rule  of  ap- 
portionment, which  gives  a  salvage  and  fails  to  in- 
demnify the  assured  for  his  loss. 

If  you  should  study  the  decisions  made  by  the 
courts,  you  would  very  quickly  become  convinced  that 
the  courts'  consideration  of  any  case  was  confined  to 
the  two  proposiiions  oi*  rules  of  apportionment  con- 
tended for  by  the  parties  to  the  suit.  The  rule  which 
would  pay  the  full  loss  would  receive  the  approval 
of  the  court,  though  the  same  rule — if  the  losses 
were  different  on  the  various  items — would,  if  ap- 
plied, fail  to  pay  the  loss  in  full,  and  would  therefore 
be  rejected. 

In  the  case  of  Angelrodt  &  Barth  vs.  Delaware  Mu- 
tual Insurance  Company,  31  Mo.  593,  the  lower  court 
applied  the  Reading  rule,  and  while  the  loss  exceeded 
the  insurance,  the  application  of  this  rule  gave  the 
defendant  a  salvage. 

THE   READING   RULE. 

Compound  insurance  shall  contribute  with  specific 
in  proportion  as  the  value  of  the  specific  property 
bears  to  the  value  of  all  the  property  covered  by  the 
compound  policy. 


10  THE  APPORTIONMENT   OF  LOSS  AND 

The  Supreme  Court  rejected  this  rule,  and  said  the 
rule  was  all  right;  but,  as  it  gave  the  insurance  com- 
pany a  salvage  when  the  loss  exceeded  the  insurance, 
it  could  not  be  applied. 

The  court  applied  the  Cromie  rule,  and  it  gave  the 
assured  the  whole  of  the  insurance,  which  was  $175.75 
less  than  the  loss. 

THE  CROMIE   RULE. 

When  the  compound  insurance  covers  property 
which  is  not  covered  by  the  specific  insurance,  a  por- 
tion of  the  compound  insurance  equal  to  the  amount 
of  loss  on  the  property  not  covered  by  the  specific 
insurance,  must  be  set  aside  to  pay  tHe  loss.  The 
remainder  of  the  compound  insurance  contributes 
with  the  specific  to  pay  the  loss  on  the  property  cov- 
ered by  the  specific  insurance.  If  the  loss  on  the 
property  covered  only  by  the  compound  insurance 
is  equal  to  or  greater  than  the  amount  of  the  com- 
pound insurance,  the  compound  insurance  will  be  ex- 
hausted and  there  will  be  nothing  to  contribute  from 
to  help  out  the  specific  insurance. 

The  decision  in  this  case  will  give  you  some  idea 
of  the  reasons  why  the  opinions  of  the  courts  have 
not  established  the  rules  to  be  applied  in  all  these 
cases,  for  the  apportionment  of  compound  insurance. 

THE  INSURANCE  CONTRACT. 

In  considering  this  class  of  claims,  it  is  of  the 
utmost  importance  to  have  a  correct  understanding 
of  the  insurance  contract.  We  are  in  the  habit  of 
speaking  as  if  the  property  was  insured.  We  fre- 
quently say  and  hear  it  said:  "The  barn  was  in- 
sured," or  "The  horse  was  insured."  By  using  these 
erroneous  expressions  we  are  apt  to  lose  sight  of  the 
real  agreement. 

It  is  a  personal  contract,  and  does  not  insure  prop- 
erty, but  does  insure  the  assured. 

It  is  an  agreement  on  the  part  of  the  insurance 
company  to  indemnify  the  assured  for  loss  or  diminu- 
tion of  value  of  the  property  described  in  the  policy, 
resulting  from  the  cause  or  causes  of  loss  and  dam- 
age mentioned  in  the  contract. 

In  May,  on  insurance,  the  author  says: 

"Whether  the  subject-matter  of  insurance  be  a 
ship,  or  a  building,  or  a  life,  or  whatever  else  it  may 
be,  although  in  popular  language  it  may  be  called 
an  insurance  upon   the   ship   or  building  or  life,   or 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     11 

some  other  thing,  yet  it  is  strictly  an  agreement  with 
some  person  interested  in  the  preservation  of  the 
subject-matter  to  pay  him  a  sum  that  will  amount  to 
an  indemnity." 

Lord  Chancellor  Hardwicke  said:  'To  whom  or 
for  what  loss  are  they  (the  Hand-in-Hand  Fire  Office) 
to  make  satisfaction?  Why,  to  a  person  insured  and 
for  the  loss  he  may  have  sustained;  for  it  cannot 
properly  be  called  insuring  the  thing,  for  there  is  no 
possibility  of  doing  it,  and  therefore  must  mean  in- 
suring the  person  from  damage." 


PRO  RATA  CONTRIBUTION  CLAUSE. 

The  contribution  between  the  companies  to  pay  the 
loss  is  provided  for  by  the  pro  rata  contribution  clause 
of  the  policy.  (See  lines  96  to  100  of  the  New  York 
standard  policy,  which  are) : 

''This  company  shall  not  be  liable  under  this  policy 
for  a  greater  proportion  of  any  loss  on  the  described 
property,  or  for  loss  by,  and  expense  of,  removal  from 
premises  endangered  by  fire,  than  the  amount  hereby 
insured  shall  bear  to  the  whole  insurance,  whether 
valid  or  not,  or  by  solvent  or  insolvent  insurers,  cov- 
ering such  property,  and  the  extent  of  the  application 
of  the  insurance  under  this  policy  or  of  the  contribu- 
tion to  be  made  by  this  company  in  case  of  loss,  may 
be  provided  for  by  agreement  or  condition  written 
hereon  or  attached  or  appended  hereto." 

The  portion  of  this  clause,  which  is  the  basis  for 
our  consideration  of  this  proposition,  is: 

"This  company  shall  not  be  liable  under  this  policy 
for  a  greater  proportion  of  any  loss  on  the  described 
property  *  *  *  than  the  amount  hereby  insured 
shall  bear  to  the  whole  insurance  *  *  *  covering 
such  property     *     *     *." 

It  is  important  at  this  time  to  understand  fully 
what  is  meant  by  the  words,  "covering  such  prop- 
erty." The  company  insured  the  assured,  and  by  its 
policy  agrees  to  indemnify  him  against  loss  or  dam- 
age to  the  described  property.  The  total  property 
described  and  covered  under  a  fixed  amount  may  be 
composed  of  several  classes,  or  it  may  be  in  several 
locations,  or  the  subject  of  insurance  may  be  several 
interests,  and  the  loss  may  be  on  less  than  all  the 
classes,  or  in  less  than  all  the  locations,  or  on  less 
than  all  the  interests. 

It  should  be  remembered  when  considering  this 
question  of  apportionment  and  contribution  of  non- 
concurrent  insurance,  that  the  rules  apply  only  when 


12  THE  APPORTIONMENT  OF  LOSS  AND 

all  the  policies  involved  are  issued  to  the  same  as- 
sured. The  non-concurrency,  because  of  different  in- 
terests, does  not  mean  different  interests  created  be- 
cause of  joint  ownership,  or  because  the  property  is 
owned  by  two  or  more  persons  doing  business  as  a 
partnership,  when  one  or  more  of  the  joint  owners, 
or  partners,  insure  their  individual  interests.  The 
different  interests  contemplated  are  those  created  by 
the  use  of  the  limitation  clauses,  which  I  will  call 
your  attention  to  later. 

If  the  policy  covered  on  all  the  classes,  or  in  all 
the  locations,  or  on  all  the  interests,  after  the  fire  as 
before,  the  insured  might  be  deprived  of  his  full  in- 
demnity, though  insured  for  more  than  the  amount 
of  loss.  The  facts  are  that  all  the  insurance  named 
in  the  policy,  which  is  the  specific  insurance  liability 
on  different  classes,  or  in  different  locations,  or  on 
different  interests,  unless  there  is  an  average  clause, 
distribution  form,  covers  for  the  purpose  of  paying 
the  loss  on  that  portion  of  the  described  property 
which  has  been  destroyed  or  damaged. 

This  point  is  of  much  importance,  and  is  really  in- 
dispensable to  a  proper  consideration  of  the  proposi- 
tion submitted,  and  for  that  reason  I  take  the  liberty 
of  copying  extensively  from  the  case  of  Page  Bros, 
vs.  Sun  Fire  Office,  decided  by  the  United  States 
Circuit  Court  of  Appeals,  and  the  case  of  the  Le 
Sure  Lumber  Company  vs.  Mutual  Fire  Insurance 
Company  of  New  York,  decided  by  the  Supreme 
Court  of  Iowa. 

In  the  case  of  Page  Bros.  vs.  Sun  Fire  Office,  which 
was  decided  in  November,  1896,  there  were  two  lum- 
ber yards  and  there  was  specific  insurance  on  the 
lumber  iri  each  and  compound  insurance,  covering 
lumber  in  both  yards.  The  loss  was  confined  to  one 
yard. 

STATEMENT. 

''Edward  S.  Page  and  Chas.  H.  Page,  co-partners 
as  Page  Bros.,  the  plaintiffs  in  error,  were  the  own- 
ers of  lumber,  lath  and  shingles  of  the  value  of  $59,- 
095.52,  situated  on  two  blocks  in  the  city  of  Anoka, 
Minn.  That  portion  of  this  property  situated  on  the 
easterly  of  these  two  blocks  was  worth  $16,727.06, 
and  that  portion  of  this  property  situated  on  the 
westerly  of  these  blocks  was  worth  $42,368.46.  On 
November  10,  1893,  a  fire  caused  a  loss  of  $30,982.02 
on  that  portion  of  their  property  situated  on  the  west- 
erly block,  but  caused  no  damage  or  loss  upon  the 
property  situated  on  the  easterly  block.    At  the  time 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     13 

of  this  fire  the  plaintiffs  in  error  held  policies  of  in- 
surance to  the  amount  of  $40,000  on  this  entire  prop- 
erty situated  on  both  blocks  and  policies  to  the 
amount  of  $10,000  upon  that  portion  of  this  property- 
situated  on  the  westerly  block.  One  of  the  latter, 
policies,  for  the  amount  of  $2,500,  was  issued  by  the 
Sun  Insurance  Office,  the  defendant  in  error.  This 
policy  contains  this  provision: 

Pro  Rata  Contribution  Clause. 

"This  company  shall  not  be  liable  under  this  policy 
for  a  greater  proportion  of  any  loss  on  the  described 
property  *  *  *  than  the  amount  hereby  insured 
shall  bear  to  the  whole  insurance,  whether  valid  or 
not,  or  by  solvent  or  insolvent  insurers,  covering 
such  property." 

Decision. 

"Upon  this  statement  of  facts  the  court  below 
held,  in  an  action  upon  this  policy,  that  both  the 
$10,000  insurance  upon  the  property  on  the  westerly 
block  only,  and  the  entire  $40,000  insurance  upon  all 
the  property  on  both  blocks,  covered  the  property 
situated  on  the  westerly  block  and  described  in  this 
policy,  and  that  the  plaintiffs  in  error  could  recover 
only  $2,500,  fifty-thousandths  of  the  amount  of  the 
loss  on  this  policy,  which  is  $1,549.10.  Judgment  was 
accordingly  entered  for  that  amount,  and  this  writ  of 
error  was  sued  to  reverse  it  (64  Fed.  194).  The  only 
error  assigned  is  that  only  such  a  proportion  of  the 
$40,000  insurance  upon  the  property  upon  both  blocks 
as  the  value  of  the  property  upon  the  westerly  block 
bore  to  the  value  of  the  property  upon  both  blocks 
(that  is  to  say,  only  4,236,846/5,909,552  of  $40,000), 
which  is  $28,677.95,  covered  the  property  upon  the 
westerly  block,  within  the  true  meaning  of  the  clause 
of  the  policy  in  suit  which  we  have  quoted;  that  the 
whole  insurance  covering  the  property  on  this  block 
was  consequently  only  $38,677.95;  and  that  the  de- 
fendant in  error  is  consequently  liable  for  250,000/ 
3,867,795,  of  $30,982.02,  the  total  loss,  which  is  $2,- 
002.56.  Ingenious  and  persuasive  arguments  have 
been  presented  to  sustain  this  assignment,  but  the 
unambiguous  terms  of  the  contract  are  fatal  to  them 
all.  This  contract  is  too  plain  to  permit  construction, 
too  positive  to  allow  evasion,  and  too  clear  to  admit 
of  doubt.  It  provides  that  this  defendant  in  error 
shall  not  be  liable  for  any  greater  proportion  of  the 
los§  on  the  property  described  in  it  than  the  amount 


14  THE  APPORTIONMENT  OF  LOSS'  AND 

insured  by  it  shall  bear  to  the  whole  insurance  cov- 
ering the  property  it  describes.  It  will  not  do  to  say 
that  the  policies  for  $40,000,  which  insured  both  this 
property  on  the  westerly  block  and  that  upon  the 
easterly  block,  did  not  cover  to  their  full  amount  the 
property  described  in  this  policy.  The  whole  includes 
all  its  parts,  and  that  which  covers  the  whole  covers 
every  part  that  constitutes  the  whole.  The  policy  in 
suit  requires  the  insured  to  state  in  his  proofs  of 
loss  "all  other  insurance,  whether  valid  or  not,  cover- 
ing any  of  said  property."  If,  pursuant  to  this  pro- 
vision, the  plaintiffs  in  error  had  stated  in  their 
proofs  of  loss  that  the  amount  of  their  insurance  on 
this  property  by  virtue  of  these  compound  policies 
for  $40,000  was  only  $28,677.95,  it  is  plain  that  their 
statement  would  not  have  been  true.  If  the  loss  upon 
the  property  on  this  westerly  block  had  been  $80,000, 
instead  of  $30,982.02,  the  insured  could  certainly  have 
collected  the  full  $40,000  on  these  compound  policies. 
How,  then,  can  it  be  said  that  the  entire  $40,000  of 
insurance  furnished  by  these  compound  policies  did 
not  cover  the  property  damaged? 

''Arguments  and  authorities  have  been  urged  upon 
our  consideration  in  support  of  the  proposition  that 
a  more  just  and  equitable  division  of  the  loss  be- 
tween the  companies  which  issued  the  compound  poli- 
cies covering  the  property  upon  both  blocks,  and 
those  which  issued  the  specific  policies  on  the  prop- 
erty upon  the  westerly  block  only,  would  be  effected 
by  treating  the  former  as  insuring  the  plaintiffs  in 
error  to  the  amount  of  $28,677.95  on  the  property  on 
the  westerly  block,  and  to  the  amount  of  $11,322.05 
on  the  property  on  the  easterly  block.  But  that  ques- 
tion is  not  presented  by  this  record.  According  to 
the  agreed  statement  of  facts  upon  which  this  case 
was  submitted,  the  $40,000  of  insurance  was  not  so 
placed.  The  question  before  us  is  not  what  contribu- 
tion each  company  which  insured  this  property  ought 
in  equity  to  make  to  the  payment  of  this  loss,  in  the 
absence  of  express  contracts  fixing  their  liabilities, 
and  we  are  compelled  to  decline  to  follow  counsel 
into  the  consideration  of  that  and  cognate  questions. 
It  is  not  our  province  to  make  contracts  for  the 
parties  to  this  suit,  or  to  modify  those  which  they 
have  themselves  deliberately  made,  because  it  ap- 
pears to  us  that  they  might  have  made  those  that 
would  have  been  more  equitable  or  more  advantage- 
ous. They  have  made  a  contract  themselves  which 
fixes  the  amount  of  the  liability  of  the  defendant  for 
this  loss.     This  action  is  founded  on  that  contract. 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     15 

and  it  is  the  sole  measure  of  the  defendant's  liability. 
The  only  question  here  is  whether  or  not  the  plain- 
tiffs in  error  may  recover,  under  this  policy,  any 
greater  proportion  of  the  loss  upon  the  property 
which  it  describes  than  that  which  the  amount  in-^ 
sured  by  it  bears  to  the  entire  insurance  covering 
that  property.  The  policy  expressly  provides  that 
they  cannot,  and  that  must  close  the  discussion. 

"The  result  is  that,  under  a  clause  in  a  policy  of 
insurance  which  provides  that  the  company  shall 
not  be  liable  for  a  greater  proportion  of  any  loss  on 
the  property  described  therein  than  that  which  the 
amount  insured  thereby  shall  bear  to  the  whole  in- 
surance covering  such  property: 

"First.  Compound  policies  insuring  the  property 
described  in  such  a  policy,  and  other  property,  cover 
the  property  so  described,  to  their  full  amount,  in 
case  of  a  loss  upon  the  property  described  in  the 
specific  policy,  and  no  less  on  the  other  property  de- 
scribed in  the  compound  policies. 

"Second.  In  such  a  case  the  company  issuing  the 
specific  policy  is  liable  for  no  greater  proportion  of 
the  loss  than  that  which  the  amount  of  such  policy 
bears  to  the  total  amount  of  both  the  compound  and 
specific  policies  covering  the  property  it  describes: 
Merrick  vs.  Insurance  Company,  54  Pa.  St.  277,  281, 
282,  284.  The  judgment  below  is  affirmed  with 
costs." 

Page  Bros.  vs.  Sun  Fire  Office,  25  Ins.  Law  Jour- 
nal 865. 

The  case  of  the  Le  Sure  Lumber  Company  vs.  Mu- 
tual Fire  Insurance  Company  was  decided  April  9, 
1897. 

LE  SURE   LUMBER  CO.  DECISION. 

"On  the  12th  day  of  March,  1894,  the  defendant 
issued  to  the  plaintiff  a  policy  insuring  it  for  the 
term  of  one  year  against  loss  or  damage  by  fire,  to 
the  amount  of  $10,000  on  its  stock  of  lumber  in  cer- 
tain yards  in  the  city  of  Dubuque.  On  the  9th  day 
of  June,  in  the  same  year,  lumber  to  the  value  of 
$74,478.55,  in  two  of  the  yards,  was  destroyed  by  fire. 
The  total  insurance  on  the  lumber  destroyed  was 
$68,500.  The  verdict  and  judgment  were  for  the  full 
amount  of  the  policy,  with  interest. 

"The  next  and  last  question  we  are  required  to  de- 
termine involves  the  real  controversy  of  the  parties 
to  this  action,  and  relates  to  the  proper  interpreta- 
tion of  a  provision  of  the  policy  which  is,  in  words, 
as  follows:     'This  company  shall  not  be  liable  under 


16  THE  APPORTIONMENT  OF  LOSS  AND 

this  policy  for  a  greater  proportion  of  any  loss  on 
the  described  property  *  *  *  than  the  amount 
hereby  issued  shall  bear  to  the  whole  insurance, 
whether  valid  or  not,  or  by  solvent  or  insolvent  in- 
surers, covering  such  property.  *  *  *  The  policy 
in  suit,  as  already  stated,  was  for  the  sum  of  $10,- 
000,  and  covered  all  the  lumber  in  three  yards  owned 
by  the  plaintiff,  and  referred  to  as  the  'north  yard,' 
'south  yard'  and  'yard  north  of  Seventh  street.'  The 
entire  insurance  on  the  lumber  in  the  three  yards 
amounted  to  $115,000.  Policies  to  the  amount  of  $14,- 
500,  called  'blanket  policies,'  including  that  in  suit, 
covered  all  the  lumber  in  the  three  yards.  In  addi- 
tion, there  was  specific  insurance  to  the  amount  of 
$54,000  on  the  lumber  in  the  north  yard,  and  to  the 
amount  of  $46,500  on  the  lumber  in  the  south  yard. 
The  lumber  in  the  yard  last  named  was  uninjured. 
The  loss  sustained  in  the  other  two  yards  w^s  $74,- 
478.85,  while  the  blanket  and  specific  insurance  upon 
the  property  lost  was  but  $68,500.  The  defendant 
contends  that  its  liability  for  the  loss  is  as  $10,000, 
the  amount  of  its  policy,  is  to  $115,000,  the  total 
amount  of  the  insurance  on  the  three  yards,  or  for 
2/23  of  $74,478.85.  It  tendered  to  the  plaintiff  that 
amount  ($6,476.42)  with  interest  from  the  termina- 
tion of  sixty  days  from  the  notice  and  proof  of  loss 
to  the  date  of  the  tender.  The  plaintiff  contends  that 
this  is  not  a  case  for  the  application  of  any  rule  of 
apportionment;  that,  as  the  value  of  the  property 
lost  was  greater  than  the  insurance  upon  it,  the  de- 
fendant is  liable  for  the  full  amount  of  its  policy  and 
interest,  and  the  district  court  so  held.  The  policy 
was  designed  to  secure  the  plaintiff  against  loss  by 
fire  in  any  or  all  of  the  yards  to  the  full  amount  of 
the  policy.  It  covered  all  of  the  property  which  was 
destroyed,  and,  if  it  is  paid  in  full,  it  will  not  fully 
compensate  the  plaintiff  for  the  loss  sustained.  In 
ascertaining  the  amount  of  insurance,  for  the  pur- 
poses of  an  apportionment,  it  would  be  just,  in  the 
absence  of  a  stipulation  to  the  contrary,  to  consider 
only  the  insurance  on  the  property  injured  or  de- 
stroyed; and  it  will  be  presumed,  in  the  absence  of 
a  showing  to  the  contrary,  that  the  parties  to  the 
contract  intended  to  provide  for  a  just  result.  The 
language  they  used  does  not  necessarily  mean  that  in 
case  of  loss  the  defendant  should  only  be  liable  for 
such  proportion  of  it  as  the  amount  it  insured  was 
of  the  total  insurance  on  all  the  property  described 
in  its  policy,  whether  the  concurrent  insurance  was 
on  all  the  property,  or  only  a  part  of  it.     We  think 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     17 


a  permissible,  and  the  correct,  interpretation  of  the 
policy  is  that  in  case  of  a  loss  the  defendant  was  not 
to  be  liable  for  a  greater  proportion  of  it  than  the 
amount  of  its  policy  bore  to  the  total  insurance  on 
the  property  injured  or  destroyed.  It  is  true,  the 
words  'described  property,'  if  not  modified,  refer  to 
all  of  the  property  covered  by  the  policy,  and  the 
phrase,  'covering  such  property'  is  equally  compre- 
hensive; but  considered  in  their  relation  to  the  word 
'loss,'  and  the  purpose  for  which  the  policy  was  is- 
sued, we  are  of  the  opinion  that  they  should  be  held 
to  refer  to  property  which  should  be  injured  or  de- 
stroyed. See  Erb  vs.  Insurance  Company  (Iowa),  69 
N.  W.  263;  Merrick  vs.  Insurance  Company,  54  Pa. 
St.  277.  There  was  nothing  in  the  evidence  in  con- 
flict with  the  conclusion  we  reach.  Hence  the  Dis- 
trict Court  properly  directed  a  verdict  for  the  plain- 
tiff for  the  amount  of  the  policy  in  suit,  and  interest. 
Its  judgment  is  therefore  affirmed." 

Le  Sure  Lumber  Company  vs.  Mutual  Fire  Insur- 
ance Company,  70  Northwestern  Reporter  761. 

There  are  two  points  which  I  have  tried  to  present 
to  you,  that  you  should  remember,  and  if  you  under- 
stand them  you  are  well  prepared  to  consider  the 
rules  used  in  disposing  of  these  cases. 

First.  It  is  the  assured  who  is  insured  and  not  the 
property. 

Second.  All  of  the  insurance — unless  there  is  an 
average  clause,  distribution  form  on  the  policy — 
covers  for  the  purpose  of  paying  the  loss,  only  on 
the  property  which  has  been  destroyed  or  damaged. 

The  rule  which  you  say  the  adjusters  in  your  field 
seem  to  be  using  quite  generally  should  not  be  used 
unless  the  compound  policy  is  excess  insurance. 


EXCESS   INSURANCE. 

The  rules  which  would  make  the  specific  insurance 
pay  the  loss  without  regard  to  the  compound  insur- 
ance, if  the  specific  insurance  was  equal  to,  or  greater 
than,  the  loss,  should  be,  if  used,  a  part  of  the  com- 
pound policy,  and  it  then  makes  the  policy  excess 
insurance.  A  policy  is  not  excess  insurance,  unless 
it  contains  a  condition  which  is  a  part  of  the  con- 
tract, and  usually  reads  as  follows:  "Not  to  be 
liable  to  contribution  for  loss  thereon,  until  after  all 
or  any  specific  insurance  on  the  property  shall  have 
been  exhausted." 


18  THE  APPORTIONMENT  OP  LOSS  AND 

THE  READING  RULE. 

"Compound  insurance  shall  contribute  with  specific 
in  proportion  as  the  value  of  the  specific  property 
bears  to  the  value  of  all  the  property  covered  by  the 
compound  policy." 

As  this  rule  is  quite  often  used  in  apportioning  the 
compound  insurance,  I  will  apply  it  to  this  case 
to  get  results,  so  that  I  can  make  plain  to  you  my 
objections  to  its  use. 

STATEMENT. 

Continental— On  wheat,  $2,500;  loss,  $3,000;  sound 
value,  $8,000. 

Continental — On  corn,  $3,000;  loss,  $4,000;  sound 
value,  $7,000. 

Continental— On  oats,  $2,000;  loss,  $8,000;  sound 
value,  $10,000. 

Aetna — On  grain,  $5,000. 

Home— On  grain,  $6,000. 

The  sound  value  of  the  wheat  is  $8,000 ;  of  the 
corn,  $7,000  and  of  the  oats,  $10,000,  making  a  total 
valuation  of  $25,000.  The  Aetna  and  Home  insur- 
ance is  made  to  cover  eight  twenty-fifths  on  wheat, 
seven  twenty-fifths  on  corn  and  ten  twenty-fifths  on 
oats. 

Apportionment  and  Contribution  on  WFieat. 

Continental  insures $2,500     Pays     $1,245.85 

Aetna  insures 1,600    Pays         797.34 

Home  insures 1,920     Pays         956.81 


Total  loss  paid $3,000.00 

Apportionment  and  Contribution  on  Corn. 

Continental   insures $3,000     Pays     $1,973.68 

Aetna  insures 1,400     Pays         921.06 

Home    Insures 1,680     Pays       1,105.26 

Total  loss  paid $4,000.00 

Apportionment  and  Contribution  on  Oats. 

Continental   insures $2,000     Pays     $2,000.00 

Aetna  insures 2,000     Pays      2,000.00 

Home  insures 2,400     Pays      2,400.00 

Total  loss   paid $6,400.00 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     19 

The  assured  is  paid  his  full  loss  on  wheat  and 
corn,  but  with  an  insurance  of  $18,500  and  a  loss  of 
$15,000,  lacks  $1,600  of  receiving  his  full  loss  on 
oats.  As  the  application  of  the  Reading  Rule  in  this 
case  fails  to  pay  the  assured  his  full  loss,  and  the 
companies  make  a  salvage,  some  other  rule  would 
have  to  be  applied  because  the  assured  must  be  paid 
his  full  loss. 

The  Reading  Rule,  which  I  have  applied  to  your 
case,  is  made  to  be  used  after  a  loss,  to  apportion 
the  compound  insurance  and  thereby  make  it  specific, 
and  it  produces  the  same  results  as  the  distribution 
form  of  the  average  clause,  which  is  intended  to  be 
put  on  the  policy  when  it  is  issued,  and  to  be  a  part 
of  the  contract  from  its  date. 

AVERAGE   CLAUSE— DISTRIBUTION    FORM. 

It  is  understood  and  agreed  that  the  amount  in- 
sured by  this  policy  shall  attach,  in  each  of  the  above- 
named  premises,  in  that  proportion  of  the  amount 
hereby  insured,  that  the  value  of  property  covered 
by  this  policy,  contained  in  each  of  said  places,  shall 
bear  to  the  value  of  such  property  contained  in  all 
of  above-named  premises. 

There  is  a  case,  lately  decided  by  the  Supreme 
Court  of  Vermont,  where  the  Reading  Rule  was  used. 

Decision. 

"The  policy  issued  by  the  defendant  contained  this 
provision:  'This  company  shall  not  be  liable  under 
this  policy  for  a  greater  proportion  of  any  loss  on 
the  described  property  than  the  amount  hereby  in- 
sured shall  bear  to  the  whole  Insurance  covering 
such  property.' 

"The  plaintiff  held  a  fire  insurance  policy  in  the 
defendant  company,  covering  specific  sums  on  three 
items,  viz.:  $562.50  on  item  a,  $612.50  on  item  b, 
$325  on  item  c.  He  held  in  the  Home  Company  a 
like  policy  for  $262.50  on  item  a,  $375  on  item  b,  and 
$112.50  on  item  c.  He  held  policies  in  the  Lloyds 
Association  for  $12,700,  called  'blanket  policies,'  in- 
suring the  same  property  as  one  item.  The  property 
was  totally  destroyed,  the  loss  being  the  full  value, 
and  was  less  than  the  total  amount  of  insurance. 
The  loss  on  the  respective  items  was  as  follows: 
$3,491.48  on  item  a,  $6,230.37  on  item  b,  and  $2,041.70 
on  item  c.  The  question  presented  is,  what  propor- 
tion of  the  loss  shall  the  respective  companies  pay? 


20  THE  APPORTIONMENT  OF  LOSS  AND 

The  rule  which  must  be  applied  to  determine  this  is 
a  legal,  just  and  equitable  one,  and  is  found  in  the 
policies.  It  is  that  each  company  shall  pay  such 
proportion  of  the  loss  as  the  sum  insured  by  it  bears 
to  the  total  insurance.  The  difficulty  in  adjusting 
the  proportion  which  each  company  shall  pay  arises 
from  the  fact  that  some  of  the  policies  are  specific 
and  others  blanket.  As,  by  the  terms  of  the  specific 
policies,  they  cannot  be  converted  into  blanket  poli- 
cies, it  necessarily  follows  that  the  only  way  in 
which  the  loss  can  be  adjusted  is  to  turn  the  blanket 
policies  into  specific  ones,  i.  e.,  determine  how  much 
of  the  full  amount  of  a  blanket  policy  shall  be  appor- 
tioned to  each  of  the  three  respective  items,  accord- 
ing to  their  respective  values.  The  value  of  the 
items,  as  shown  by  the  loss,  is  as  follows:  Item  a, 
$3,491.48;  item  b,  $6,230.37;  item  c,  $2,014.70,  equalling 
$11,736.55.  Apportioning  the  amount  of  the  blanket 
policies — $12,700 — upon  the  amount  of  the  loss  by 
using  the  proportion  as  the  value  of  the  whole  prop- 
erty is  to  the  whole  blanket  insurance,  so  is  the 
value  of  each  item  to  the  insurance  on  each  item, 
we  find  the  insurance  on  each  item  to  be,  item  a, 
$8,778.09:  item  b,  $6,741.82;  item  c,  $2,180.09,  equal- 
ling $12,700,  and  the  total  amount  of  the  insurance 
upon  each  item  to  be,  item  a,  $4,603.09;  item  b, 
$7,729.32;  item  c,  $2,617.59.  As  each  company  pays 
in  the  ratio  that  the  amount  of  its  policy  bears  to  the 
total  amount  of  insurance,  the  defendant  is  liable  in 
respect  to  item  a,  $426.66;  item  b,  $493.73;  item  c, 
$250.14,  equalling  $1,170.53— the  amount  for  which 
judgment  was  entered  below.  The  judgment  is  cor- 
rect and  is  affirmed." 

Chandler  vs.  Insurance  Company  of  North  America, 
41  Atlantic  Reporter  502. 

After  reading  this  case,  we  know  the  court  applied 
the  Reading  Rule,  to  apportion  the  compound  insur- 
ance; but  we  cannot  determine  from  this  decision, 
and  we  have  no  intimation,  what  the  court  would 
have  done  if  the  value  and  loss  of  item  A  had  ex- 
ceeded $4,603.09,  or  if  the  value  and  loss  of  either 
one  of  the  other  items  had  been  greater  than  .the 
total  specific  insurance  as  fixed  by  the  court. 

In  this  case  the  property  covered  by  the  compound 
insurance  was  all  destroyed,  and  it  was  worth  less 
than  the  total  insurance,  therefore  the  loss  and  value 
were  the  same.  If  the  court  had  used  the  word  "loss'* 
in  place  of  "value,"  the  rule  used  would  have  been 
the  "Griswold,"  and  not  the  "Reading." 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     21 

When  there  are  one  or  more  items  of  property, 
which  are  covered  by  specific  insurance,  on  which 
there  is  a  loss,  the  application  of  the  Reading  Rule 
usually  carries  so  much  of  the  compound  insurance 
to  the  items  of  property  covered  by  specific  insur- 
ance, and  not  destroyed  or  damaged,  that  the  as- 
sured, though  having  more  insurance  than  loss,  is 
not  paid  in  full  for  his  loss. 

There  is  no  question  but  that  if  the  compound  and 
specific  insurance  equals  or  exceeds  the  amount  of 
loss  to  the  property  covered  by  it,  the  assured's  loss 
must  be  paid  in  full,  regardless  of  the  result  which 
any  particular  rule  of  apportionment  may  produce. 

If  the  w^ords  in  the  Reading  Rule  "covered  by  the 
compound  policy"  mean  only  the  property  destroyed 
or  damaged,  then  it  differs  from  the  average  clause. 
I  am  unable  to  find  any  case  where  the  court  has 
applied  to  this  rule  any  such  construction,  neither 
have  I  met  any  adjuster  who  advocated  this  rule,  who 
gave  it  any  such  construction.  I  therefore  feel  justi- 
fied in  making  the  statement  that  to  adjust  a  loss 
and  apply  the  Reading  Rule  is  to  make,  subsequent 
to  a  fire,  a  new  contract  and  one,  if  it  is  to  be  rec- 
ognized, should  have  been  made  when  the  policy  was 
written  by  putting  the  average  clause  on  the  policy. 

This  rule  is  also  objectionable  because  it  is  not 
susceptible  of  general  application.  As,  for  instance, 
in  the  case  of  Angelrodt  &  Barth  vs.  Delaware  Mu- 
tual Insurance  Company,  31  Mo.  593,  the  court  ap- 
plied this  rule,  and  as  it  failed  to  fully  indemnify  the 
assured,  and  gave  the  insurance  company  a  salvage, 
when  the  loss  exceeded  the  total  insurance,  it  was 
rejected  and  another  rule  applied. 

It  is  in  conflict  with  the  rule  made  by  the  courts 
in  the  following  cases: 

Cromie  vs.  Kentucky  and  Louisville  Insurance  Com- 
pany, 15  B.  Monroe  Ky.  432. 

Angelrodt  &  Barth  vs.  Delaware  Mutual  Insurance 
Company,  31  Mo.  539. 

Page  Bros.  vs.  Sun  Fire  Office,  25  Ins.  Law  Journal. 
8G5. 

Le  Sure  Lumber  Company  vs.  Mutual  Fire  Insur- 
ance Company,  70  Northwestern  Reporter  61. 

In  the  case  of  Page  Bros.  vs.  Sun  Fire  Office,  25 
Ins.  Law  Journal.  865,  the  assured  asked  to  have  the 
compound  insurance  made  specific  on  the  basis  of  the 
sound  value,  or  to  have  the  Reading  Rule  applied. 
The  court  refused  to  apportion  the  insurance  in  ac- 
cordance with  the  Reading  Rule,  and  discussed  the 
question  as  follows: 


22  THE  APPORTIONMENT  OF  LOSS  AND 

"The  only  error  assigned  is  that  only  such  a  pro- 
portion of  the  $40,000  insurance  upon  the  property 
upon  both  blocks  as  the  value  of  the  property  upon 
the  westerly  block  bore  to  the  value  of  the  property 
upon  both  blocks  (that  is  to  say,  only  4,236,846/5,909,- 
552  of  $40,000),  which  is  $28,677.95,  covered  the  prop- 
erty upon  the  westerly  block,  within  the  true  meaning 
of  the  clause  of  the  policy  in  suit  which  we  have 
quoted;  that  the  whole  insurance  covering  the  prop- 
erty on  this  block  was  consequently  only  $38,677.95; 
and  that  the  defendant  in  error  is  consequently  lia- 
ble for  250,000/3,867,795  of  $30,982.02,  the  total  loss, 
which  is  $2,002.56.  Ingenious  and  persuasive  argu- 
ments have  been  presented  to  sustain  this  assignment, 
but  the  ambiguous  terpas  of  the  contract  are  fatal  to 
them  all.  This  contract  is  too  plain  to  permit  con- 
struction, too  positive  to  allow  evasion,  and  too  clear 
to  admit  of  doubt.  It  provides  that  this  defendant 
in  error  shall  not  be  liable  for  any  greater  proportion 
of  the  loss  on  the  property  described  in  it  than  the 
amount  insured  by  it  shall  bear  to  the  whole  insur- 
ance covering  the  property  it  describes.  It  will  not 
do  to  say  that  the  policies  for  $40,000,  which  insured 
both  this  property  on  the  westerly  block  and  that  upon 
the  easterly  block,  did  not  cover  to  their  full  amount 
the  property  described  in  this  policy.  The  whole  in- 
cludes all  its  parts,  and  that  which  covers  the  whole 
covers  every  part  that  constitutes  the  whole. 

"The  result  is  that,  under  a  clause  in  a  policy  of 
insurance  which  provides  that  the  company  shall  not 
be  liable  for  a  greater  proportion  of  any  loss  on  the 
property  described  therein  than  that  which  the 
amount  insured  thereby  shall  bear  to  the  whole  in- 
surance covering  such  property: 

''First.  Compound  policies  insuring  the  property 
described  in  such  a  policy,  and  other  property,  cover 
the  property  so  described  to  their  full  amount,  in  case 
of  a  loss  upon  the  property  described  in  the  specific 
policy,  and  no  loss  on  the  other  property  described  in 
the  compound  policies. 

"Second.  In  such  a  case  the  company  issuing  the 
specific  policy  is  liable  for  no  greater  proportion  of 
the  loss  than  that  which  the  amount  of  such  policy 
bears  to  the  total  amount  of  both  the  compound  and 
specific  policies  covering  the  property  it  describes.'' 

In  the  case  of  The  Le  Sure  Lumber  Company  vs. 
Mutual  Fire  Insurance  Company,  70  Northwestern 
Reporter  761,  the  insurance  company  did  not  ask  to 
have  the  Reading  Rule  applied,  but  it  did  request 
that  its  liability  be  limited  to  such  a  proportion  of 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     23 

the  loss,  as  its  policy  bore  to  all  the  insurance  on  the 
lumber  in  the  two  yards  burned  and  the  one  not 
burned.  The  court  decided  that  all  of  the  insurance 
covered  for  the  purpose  of  paying  the  loss  on  the  prop- 
erty injured  or  destroyed,  and  this  decision  is  fatal 
to  the  Reading  Rule.  The  court,  in  deciding  the  case, 
says : 

"On  the  12th  day  of  March,  1894,  the  defendant  is- 
sued to  the  plaintiff  a  policy  insuring  it  for  the  term 
of  one  year  against  loss  or  damage  by  fire,  to  the 
amount  of  $10,000  on  its  stock  of  lumber  in  the  city 
of  Dubuque.  On  the  9th  day  of  June,  in  the  same 
year,  lumber  to  the  value  of  $74,478.55,  in  two  of  the 
yards,  was  destroyed  by  fire.  The  total  insurance  on 
the  lumber  destroyed  was  $68,500.  The  verdict  and 
judgment  were  for  the  full  amount  of  the  policy,  with 
interest. 

"The  next  and  last  question  we  are  required  to  de- 
termine involves  the  real  controversy  of  the  parties 
to  this  action,  and  relates  to  the  proper  interpretation 
of  a  provision  of  the  policy  which  is,  in  words,  as 
follows:  'This  company  shall  not  be  liable  under 
this  policy  for  a  greater  proportion  of.  any  loss  on  the 
described  property  *  *  *  than  the  amount  hereby 
insured  shall  bear  to  the  whole  insurance,  whether 
valid  or  not,  or  by  solvent  or  insolvent  insurers,  coy-  • 
ering  such  property  *  *  *.'  The  policy  in  suit,  as 
already  stated,  was  for  the  sum  of  $10,000,  and  cov- 
ered all  the  lumber  in  three  yards  owned  by  the 
plaintiff,  and  referred  to  as  the  'north  yard,'  'souths 
yard,'  and  'yard  north  of  Seventh  street.'  The  entire^ 
insurance  on  the  lumber  in  the  three  yards  amounted' 
to  $115,000.  Policies  to  the  amount  of  $14,500,  called' 
'blanket  policies,'  including  that  in  suit,  covered  all' 
the  lumber  in  the  three  yards.  In  addition,  there  was; 
specific  insurance  to  the  amount  of  $54,000  on  the- 
lumber  in  the  north  yard,  and  to  the  amount  of  $46y- 
500  on  the  lumber  in  the  south  yard.  The  lumber  in 
the  yard  last  named  was  uninjured.  The  loss  sus- 
tained in  the  other  two  yards  was  $74,478.85,  while 
the  blanket  and  specific  insurance  upon  the  property 
lost  was  but  $68,500.  The  defendant  contends  that 
its  liability  for  the  loss  is  as  $10,000,  the  amount  of 
its  policy,  is  to  $115,000,  the  total  amount  of  the  in- 
surance on  the  three  yards,  or  for  2/23  of  $74,478.85. 

"The  policy  was  designed  to  secure  the  plaintiff 
against  loss  by  fire  in  any  or  all  of  the  yards  to  the 
full  amount  of  the  policy.  It  covered  all  of  the  prop- 
erty which  was  destroyed,  and,  if  it  is  paid  in  full, 
it  will  not  fully  compensate  the  plaintiff  for  the  loss; 


24  THE  APPORTIONMENT  OF  LOSS  AND 

sustained.  In  ascertaining  the  amount  of  insurance 
for  the  purpose  of  apportionment,  it  would  be  just 
in  the  absence  of  a  stipulation  to  the  contrary,  to 
consider  only  the  insurance  on  the  property  injured 
or  destroyed;  and  it  will  be  presumed  in  the  absence 
of  a  showing  to  the  contrary,  that  the  parties  to  the 
contract  intended  to  provide  for  a  just  result.  The 
language  they  used  does  not  necessarily  mean  that  in 
case  of  loss  the  defendant  should  only  he  liable  for 
such  proportion  of  it  as  the  amount  it  insured  was  of 
the  total  insurance  on  all  the  property  described  in 
its  policy,  whether  the  concurrent  insurance  was  on 
all  of  the  property,  or  only  a  part  of  it.  We  think 
a  permissible,  and  the  correct,  interpretation  of  the 
policy  is  that  in  case  of  a  loss  the  defendant  was  not 
to  be  liable  for  a  greater  proportion  of  it  than  the 
amount  of  its  policy  bore  to  the  total  insurance  on 
the  property  injured  or  destroyed.  It  is  true,  the 
words  'described  property,'  if  not  modified,  refer  to 
all  of  the  property  covered  hy  the  policy,  and  the 
phrase  'covering  such  property'  is  equally  comprehen- 
sive; hut  considered  in  their  relation  to  the  word 
'loss,'  and  the  purpose  for  which  the  policy  was  issued, 
we  are  of  the  opinion  that  they  should  he  held  to  refer 
to  property  which  shoiild  he  injured  or  destroyed."  . 

There  are  two  rules  which  are  used  frequently,  but 
they  have  not  been  approved  by  the  courts,  except 
in  one  case,  so  far  as  I  have  been  able  to  learn.  In 
the  case  of  Sherman  vs.  Madison  Mutual  Insurance 
Company,  39  Wis.  104,  which  was  decided  in  1876, 
the  rules  I  refer  to  were  used  in  the  adjustment  of  a 
claim  for  loss  on  live  stock.  I  will  refer  to  this  case 
later,  and  give  you  a  copy  of  it.  These  rules  are  so 
■easily  applied,  so  frequently  used,  so  palpably  wrong, 
and  so  clear  a  violation  of  the  conditions  of  the  policy, 
that  it  would  be  improper  to  pass  them  without  con- 
sideration. 

One  of  them  is  very  generally  used,  and  I  will  apply 
it  first: 

HARTFORD   RULE. 

The  compound  insurance  contributes  from  its  full 
amount  with  the  specific,  to  pay  the  loss  on  the  first 
item  in  the  general  form  on  which  there  is  a  loss. 
The  remainder  of  the  compound  insurance,  after  de- 
ducting amount  of  loss  paid,  contributes  with  the 
specific  insurance  on  the  next  item  in  the  general 
form  on  which  there  is  a  loss.  This  plan  to  be  fol- 
lowed until  the  whole  loss  is  paid  or  the  compound 
insurance  is  exhausted. 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     25 

I  give  this  rule  the  name  of  Hartford  Rule,  because 
the  only  man  whom  I  ever  heard  advocate  its  use 
was  a  representative  of  the  Hartford  Fire  Insurance 
Company. 

I  will  apply  the  above  rule  to  this  case  that  you 
may  clearly  understand  it. 

STATEMENT. 

Continental— On  wheat,  $2,500;  loss,  $3,000. 
Continental — On  corn,  $3,000;   loss,  $4,000. 
Continental— On  oats,  $2,000;   loss,  $8,000. 
Aetna— On  grain,  $5,000. 
Home— On  grain,  $6,000. 

Apportionment  and  Contribution  on  Wheat. 

Continental  insures $2,500     Pays     $555.56 

Aetna  insures 5,000     Pays    1,111.11 

Home  insures 6,000     Pays    1,333.33 

Total  loss  paid $3,000.00 

Apportionment  and  Contribution  on  Corn. 

Continental  insures   $3,000.00     Pays     $1,038.47 

Aetna  insures 3,888.89     Pays       1,346.15 

Home  insures 4,666.67     Pays      1,615.38 

Total  loss  paid $4,000.00 

Apportionment  and  Contribution  on   Oats. 

Continental  insures   $2,000.00     Pays     $2,000.00 

Aetna  insures 2,542.74     Pays       2,542.74 

Home  insures 3,051.29     Pays       3,051.29 

Total  loss  paid $7,594.03 

The  results,  as  you  will  see,  are  that  we  exhaust 
the  compound  insurance  and  fail  to  pay  the  full  loss. 
The  assured,  though  he  has  more  insurance  than  loss, 
loses  by  the  application  of  this  rule  $405.97. 

The  apportionment  made  for  the  Aetna  by  the  ap- 
plication of  this  rule  was: 

On    wheat $5,000.00 

On  corn 3,888.89 

On   oats..' 2,542.74 

Total    $11,431.63 


26  THE  APPORTIONMENT  OP  LOSS  AND 

The  Home  is  required  to  contribute  from  an  appor- 
tionment as  follows: 

On    wheat $6,000.00 

On    corn 4,666.67 

On   oats 3,051.29 

Total    $13,717.96 

The  results  are  that  the  Aetna,  with  a  policy  of 
$5,000,  is  made  to  contribute  from  $11,431.63,  and  the 
Home  contributes  from  $13,717.96,  when  the  amount 
of  the  policy  is  only  $6,000. 

CHICAGO   RULE. 

The  compound  insurance  contributes  from  its  full 
amount  with  the  specific  to  pay  the  loss  on  the  item 
covered  by  specific  insurance  on  which  there  is  the 
largest  loss.  The  remainder  of  compound  insurance 
after  deducting  amount  of  loss  paid  contributes  with 
the  specific  insurance  on  the  item  having  the  second 
largest  loss.  This  plan  to  be  followed  until  the 
whole  loss  is  paid  or  the  compound  insurance  is  ex- 
hausted. 

I  call  this  the  Chicago  Rule  because  it  seems  to  be 
the  favorite  rule  of  many  of  the  Chicago  adjusters, 
and  its  use  in  the  cases  of  compound  and  specific  In- 
surance is  advocated  by  them. 

This  rule  differs  a  very  little  from  the  one  just  ap- 
plied, and  is  more  frequently  used.  I  will  apportion 
the  insurance  according  to  it,  to  demonstrate  that  it 
is  wrong. 

STATEMENT. 

Continental— On  wheat,  $2,500;  loss,  $3,000. 

Continental— On  corn,  $3,000;   loss,  $4,000. 

Continental— On  ots,  $2,000;  loss,  $8,000. 

Aetna— On  grain,  $5,000. 

Home— On  grain,  $6,000. 

Apportionment  and   Contribution    on   Oats. 

Continental   insures $2,000     Pays     $1,230.77 

Aetna    insures 5,000     Pays       3,076.92 

Home   insures 6,000     Pays       3,692.31 

Total  loss   paid $8,000.00 

Apportionment  and   Contribution   on   Corn. 

Continental   insures $3,000.00     Pays     $1,659.58 

Aetna  insures 1,923.08     Pays   .   1,063.84 

Home   insures 2,307.69     Pays       1,276.58 


Total   loss   paid $4,000.00 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     27 

Apportionment  and  Contribution  on  Wiieat. 

Continental   insures $2,500.00     Pays     $1,708.29 

Aetna  insures 859.24     Pays         587.13 

Home  insures 1,031.11     Pays         704.58 

Total  loss   paid .$3,000.00 

From  the  application  of  this  rule,  the  assured  is 
paid  the  full  amount  of  his  loss  and  all  the  compa- 
nies have  a  salvage. 

The  Aetna  has  to  contribute  from  an  apportion- 
ment as  follows: 

On  oats   $5,000.00 

On  corn    1,923.08 

On  wheat   859.24 

Total $7,782.32 

The  application  of  this  rule  makes  the  following 
apportionment  for  the  Home: 

On  oats    $6,000.00 

On  corn 2,307.69 

On  wheat    1,031.11 

Total   $9,338.80 

This  rule  produces  more  equitable  results  than  the 
other,  because  a  larger  part  of  the  compound  insur- 
ance is  paid  on  the  loss  on  oats. 

The  Aetna,  with  a  $5,000  policy,  contributes  from 
$7,782.32,  and  the  Home  contributes  from  $9,338.80, 
with  a  $6,000  policy. 

These  two  rules  for  the  apportionments  of  com- 
pound policies  should  never  be  used. 

The  limit  of  liability  of  the  company  is  fixed  by 
the  terms  of  the  policy. 

"This  company  shall  not  be  liable  under  this  policy 
for  a  greater  proportion  of  any  loss  on  the  described 
property  *  *  *  than  the  amount  hereby  insured 
shall  bear  to  the  whole  insurance  *  *  *  covering 
such  property.'* 

Any  rule  which  requires  a  company  to  contribute 
from  one  cent  more  than  the  full  amount  of  insur- 
ance, on  the  described  property  named  in  the  policy, 
or  the  amount  made  specific  by  the  average  clause, 
distribution  form,  is  clearly  and  positively  in  confiict 
with  the  conditions  of  the  policy. 


28  THE  APPORTIONMENT  OF  LOSS  AND 

APPORTIONMENT  AND  CONTRIBUTION  OF  NON- 
CONCURRENT   INSURANCE. 

The  rule  whicli  I  have  named  the  ''Chicago  Rule" 
requires  the  compound  insurance  to  contribute  from 
its  full  amount  with  the  specific  insurance,  on  the 
item  specifically  insured  on  which  there  is  the  larg- 
est amount  of  loss,  and  then  the  remainder  of  the 
compound  insurance,  after  deducting  the  amount  of 
loss  it  pays  under  the  first  apportionment,  contrib- 
utes with  the  specific  insurance  on  the  item  specific- 
ally insured,  which  has  suffered  the  second  largest 
amount  of  loss.  This  plan  to  be  repeated  until  the 
losses  are  paid  or  the  compound  insurance  is  ex- 
hausted. 

The  Rule  Upheld. 

I  have  a  record  now  of  four  cases  where  the  courts 
of  last  resort  in  as  many  different  States  have  up- 
held the  above  rule,  and  in  one  case,  the  court,  in 
approving  the  rule,  entered  into  an  elaborate  dis- 
cussion of  some  of  the  points  involved.  This  opin- 
ion, which  was  rendered  by  the  Supreme  Court  of 
Connecticut,  will  be  given  in  full  herein. 

The  attention  of  every  person  who  is  interested . 
in  the  subject  of  apportionment  and  contribution  of 
non-concurrent  insurance,  is  particularly  called  to 
this  Connecticut  decision,  because  it  furnishes  a  ba- 
sis for  a  careful  and  intelligent  study  of  the  applica- 
tion of  this  rule.  1  would  like  to  suggest  to  each  per- 
son, who  reads  this  communication,  who  occupies  a 
position  with  a  company  which  makes  him  in  any 
degree  responsible  for  the  expense  of  adjusting 
claims,  to  keep  in  mind  the  fact  that  it  is  very  ex- 
pensive to  carry  a  case  through  the  Supreme  Court 
of  a  State,  even  if  it  goes  there  on  an  agreed  state- 
ment of  facts.  Why,  therefore,  do  not  all  of  the 
insurance  companies  east  of  the  Pacific  Coast  field, 
do  as  the  managers  on  the  Pacific  Coast  have  done, 
and  that  is  to  adopt  some  rule  which  is  equitable, 
and  which  to  the  least  extent  violates  the  contracts, 
and  which  is  susceptible  of  the  most  general  appli- 
cation, and  thereby  keep  all  of  these  cases  out  of  the 
courts?  If  every  adjuster  would  go  to  a  loss  with 
instructions  to  use  the  same  rule  in  all  cases  of  non- 
concurrent  insurance,  there  would  be  no  delay  in  the 
adjustment  and  no  law  suits  resulting  therefrom. 

The  first  case  in  which  this  rule  was  to  any  extent 
recognized  was  decided  in  1876  by  the  Supreme  Court 
of  Wisconsin.     This  was   the   case   of   Sherman  vs. 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     2» 


Madison  Mutual  Insurance  Company,  39  Wis.  104. 
In  this  case  the  claim  was  for  the  loss  of  several 
head  of  cattle,  and' the  policies  involved  in  the  claim 
contained  different  limits  of  loss  liability.  In  decid- 
ing the  question  as  to  the  amount  of  loss,  each  com- 
pany should  pay,  the  court  applied  this  rule,  but  it 
was  done  in  such  a  way  that  the  Supreme  Court  of 
Connecticut,  in  commenting  on  the  opinion,  says: 
"*  *  *  this  doctrine  receives  at  least  implied  sanc- 
tion." 

The  next  case  where  this  rule  was  applied  is  that 
of  Herr  vs.  Greenwich  Insurance  Company,  20  Pa. 
Superior  Court  169,  and  this  decision  was  made 
April  21st,  1902.  There  was  no  discussion  by  the 
court  in  rendering  its  opinion  in  this  case,  of  any 
of  the  points  involved,  therefore  the  decision  is  val- 
uable only  as  showing  that  the  Superior  Court  of 
Pennsylvania  has  applied  this  rule  and  thereby 
approved  it. 

Another  case  where  this  rule  was  applied  was  that 
of  Grollimund  &  Germania  Fire  Ins..  Co.,  decided 
August  22nd,  1912,  by  the  New  York  Court  of  Errors 
and  Appeals. 

The  Connecticut  Case. 

The  third  case,  and  the  only  one  where  this  rule 
has  been  approved,  and  at  the  same  time  the  ques- 
tions involved  have  been  discussed  by  the  court  in 
its  opinion,  is  that  of  Schmaelzle  vs.  London  &  Lan- 
cashire Ins.  Co.,  decided  January  7th,  1903,  by  the 
Supreme  Court  of  Errors  of  Connecticut,  and  the 
opinion  will  be  found  in  53  Atlantic  Reporter  841. 
The  full  opinion  is  given  herein  and  it  is  as  follows: 

"The  plaintiff  is  the  owner  of  premises  upon  which 
stood  a  brewery  and  shed.  In  the  brewery  were 
machinery  and  stock.  Upon  the  buildings,  machinery 
and  stock  the  plaintiff  carried  in  some  thirty-four 
companies  insurance  against  fire  aggregating  $60,000 
in  amount.  These  policies  were  all  of  the  standard 
form,  and  contained  the  following  provisions:  *This 
company  shall  not  be  liable  under  this  policy  for  a 
greater  proportion  of  any  loss  on  the  described  prop- 
erty *  *  *  than  the  amount  hereby  insured  shall 
bear  to  the  whole  insurance,  whether  valid  or  not, 
or  by  solvent  or  insolvent  companies,  covering  such 
property  *  *  *.'  Thirty-one  of  the  policies,  covering 
insurance  for  $55,000,  were  of  the  kind  known  as 
'blanket' or  ^compound*  policies;  that  is,  they  insured 
said  buildings,  machinery  and  stock  as  a  whole,  and 


30  THE  APPORTIONMENT  OF  LOSS  AND 

. • . 

without  distributing  the  amount  of  the  insurance 
among  the  several  items.  The  remaining  policies, 
containing  insurance  for  $5,000,  were  of  the  kind 
known  as  'specific';  that  is,  the  amount  insured 
hereby  was  distributed  among  the  several  items  of 
property,  a  specific  amount  to  each  item.  Each  of 
these  specific  policies  covered  in  the  whole  precisely 
the  same  property  as  did  the  compound  insurance, 
but  distributively.  This  distribution  was  uniform 
among  the  specific  policies,  and  was  among  four  sep- 
arate items,  to-wit,  the  main  or  brewery  building, 
stock,  machinery  and  shed,  as  follows:  $1,634.88  on 
the  brewery,  $1,839.21  on  the  stock,  $1,498.64  on  the 
machinery,  and  $27.24  on  the  shed.  A  fire  damaged 
the  brewery,  stock  and  machinery.  The  sound  value 
of  the  property  insured  was  $59,982,  divided  as  fol- 
lows: Brewery,  $20,586;  stock,  $11,085;  machinery, 
$28,111,  and  shed,  $200.  The  loss  by  the  fire  was 
mutually  adjusted  at  $42,953,  distributed  as  follows: 
Brewery,  $15,115;  stock,  $11,085;  machinery,  $16,- 
758,  and  shed,  0. 

*'It  is  conceded  that  the  assured  is  entitled  to  re- 
ceive- from  the  defendants  the  amount  of  his  loss 
above  stated.  The  only  question  in  the  case  is  one 
between  the  several  defendants  as  to  the  sum  which 
each  should  pay.  Between  the  blanket  insurers  there 
is  no  dispute,  and  between  the  specific  there  is  none. 
The  contention  is  between  the  two  classes  of  insur- 
ers, and  is  as  to  the  method  to  be  employed  in  the 
apportionment  of  the  loss  in  view  of  the  provisions 
as  to  prorating  which  appear  alike  in  all  the  poli- 
cies and  which  have  been  quoted.  It  is  clear  that 
the  compound  and  the  specific  insurance  must  be 
brought  together  in  prorating.  This  necessarily  in- 
volves an  adjustment  by  separate  items,  and  the 
application  in  some  way  of  the  blanket  insurance 
to  each  item  covered  by  specific  insurance.  The 
question  is  as  to  how  this  shall  be  done.  The  claim 
of  the  blanket  insurers  is  that  their  policies  should, 
for  the  purpose  of  the  distribution  of  the  loss,  be 
converted  into  specific  ones;  specific  amounts  under 
the  policies  being  set  out  to  each  item  upon  which 
there  is  specific  insurance,  so  that,  for  the  purpose 
of  determining  the  amount  that  any  blanket  policy 
shall  contribute  towards  any  item  of  loss  upon  which 
there  is  specific  insurance  the  amount  of  the  blanket 
policy's  insurance  upon  such  item  and  the  total 
amount  of  insurance  thereon  shall  be  computed 
upon  the  basis  thus  ascertained.  The  methods  sug- 
gested for  making  this  conversion  from  compound 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     31 

to  specific  are  two,  both  of  which  are  claimed  as 
having  the  approval  of  authority  and  experience. 
One  method  is  to  distribute  the  amount  of  the  blan- 
ket policy  over  the  property  insured  by  it  so  that 
the  items  bearing  specific  insurance  shall  be  credited 
with  insurance  to  such  a  proportionate  amount  of  the 
whole  as  the  sound  value  of  the  specific  item  bears 
to  the  sound  value  of  the  whole.  The  other  is  to 
make  this  conversion  upon  the  basis  of  the  respect- 
ive losses  upon  the  property  insured.  The  specific 
insurers,  upon  the  other  hand,  contend  that  there 
should  be  no  such  conversion;  but  that  in  adjusting 
each  item  of  loss  the  total  amount  of  insurance 
thereon  and  the  amount  insured  by  each  blanket 
policy  be  determined  by  including  the  entire  amount 
of  the  compound  insurance  which  has  not  been  pre- 
viously exhausted  in  adjusting  some  other  item.  The 
widely  differing  results  to  which  the  two  claims 
might  lead  are  apparent.  In  making  these  claims 
and  others  which  are  incidental  to  them,  all  the 
parties  concede  that,  whatever  general  rule  of  ap- 
portionment of  loss  may  be  adopted,  it  must,  in  so 
far  as  it  is  not  directly  prescribed  by  the  contract, 
yield  in  case  of  need  to  the  interests  of  the  assured. 
The  first  requisite  of  any  method  of  apportionment 
sought  to  be  applied  must  be  the  assured's  protec- 
tion to  the  full  extent  of  his  rights  under  his  poli- 
cies. Any  method  which,  in  a  given  case,  fails  to 
afford  him  the  full  measure  of  his  just  indemnity, 
must  give  place  to  another  which  will.  In  the  pres- 
ent case  the  plaintiff  has  no  concern  as  to  which  of 
the  suggested  methods  be  adopted  in  distributing 
his  loss  among  his  insurers.  The  interests  of  the 
latter  are  alone  involved.  The  whole  question  arises 
out  of  the  application  to  the  facts  of  the  case  of  the 
provisions  of  the  prorating  clause  in  the  policies. 
Each  insurer  has  not  entered  into  an  unqualified 
obligation  to  indemnify  the  assured  to  the  extent  of 
his  loss,  or  to  the  extent  of  his  loss  limited  to  the 
amount  of  the  policy.  It  has  made  a  contract  which 
gives  it,  as  against  the  assured,  a  benefit  arising 
from  co-insurance.  It  stipulates  that  its  liability 
shall  be  limited  in  amount  dependent  upon  the  exist- 
ence and  amount  of  such  co-insurance.  The  policy 
expressly  states  how  its  liability  shall  be  deter- 
mined. The  question,  therefore,  becomes  one  of 
contract  construction.  It  is  not  one  of  equitable 
determination  in  the  absence  of  an  agreement,  as 
was  the  case  in  certain  of  the  adjudicated  cases. 
We  are  not  called  upon  to  adjust   the   equities   be- 


32  THE  APPORTIONMENT  OP  LOSS  AND 

tween  co-insurers,  one  liaving  paid  more  than  his 
fair  share  of  loss.  We  are  not  dealing  with  the  doc- 
trine of  subrogation.  The  parties  have  recorded 
their  agreement,  and  we  have  only  to  determine  its 
meaning,  and  enforce  it. 

What  Amount  Attached  to  Each   Item? 

"The  policy  provision,  to  restate  its  pertinent  por- 
tion, is:  *This  company  shall  not  be  liable  under 
this  policy  for  a  greater  portion  of  any  loss  of  the 
described  property  *  *  *  than  the  amount  hereby 
insured  shall  bear  to  the  whole  insurance.'  It  is 
thus  provided  that  the  mode  to  be  employed  in  de- 
termining the  extent  of  liability  is  purely  a  mathe- 
matical one,  involving  the  stating  of  a  problem  in 
simple  proportion.  The  three  known  terms  of  the 
proportion,  from  which  the  fourth,  to-wit,  the  amount 
of  the  liability  under  the  given  .policy,  is  to  be 
deduced,  are  stated  to  be  the  whole  insurance,  the 
amount  insured  under  the  policy,  and  the  loss.  The 
loss  is  in  this  case  an  ascertained  sum.  In  any  it  is 
a  determinable  one.  Where  the  given  policy  is  a 
specific  one,  the  second  term  is  also  a  definite  one, 
and  only  the-  first  remains  open  to  question.  If  the 
given  policy  is  a  blanket  one,  then  both  the  first 
and  second  terms  are  subject  to  dispute.  An  answer 
to  a  single  question,  however,  resolves  all.  That 
question,  which  thus  stands  out  as  the  controlling 
one  in  the  situation,  is  thus  seen  to  be  this:  *By 
the  term  of  a  blanket  policy,  what  amount  of  insur- 
ance attached  to  each  item  embraced  within  the 
insurance?'  The  answer  to  this  question  is  not  a 
hidden  one.  The  characteristic  features  of  a  blanket 
policy  are  well  understood.  Its  very  essence  is  that 
it  covers  to  the  full  amount  every  item  of  property 
described  in  it.  If  the  loss  upon  one  portion  or  item 
of  the  property  Exhausts  the  full  amount  of  the  pol- 
icy, the  whole  insurance  must  be  paid.  There  can 
be  no  apportionment  of  it.  In  the  absence  of  a 
prorating  clause,  one  blanket  insurer  among  many 
insurers,  whether  blanket  or  specific,  may  be  sued, 
and  he  must  pay  the  whole  loss,  if  it  is  not  in  excess 
of  his  policy.  His  payment  will  give  him  certain 
equitable  rights  of  contribution  as  against  his  co- 
insurers,  but  his  legal  obligation  to  pay  the  assured 
can  not  be  questioned.  The  contract  holds  him  to  that. 
These  principles  are  elementary.  Joyce,  Ins.  2492; 
May,  Ins.  (3d  Ed.)  13;  Ostrander,  Ins.  204.  It  is  in 
such  particulars  as  these  that  blanket  policies  differ 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     33 


from  specifics.  The  difference  is  one  which  inheres 
in  the  nature  of  the  two  contracts,  and  has  its  recog- 
nition in  the  accepted  advantages  of  a  blanket  policy 
to  the  assured  and  its  disadvantages  to  the  insurer, 
and  in  the  more  exacting  terms  which  are  customa- 
rily demanded  for  its  issue.  The  answer  to  our 
question  must,  therefore,  be  that  the  whole  amount 
insured  by  a  blanket  policy  attaches,  and  invariably 
attaches  to  each  item  thereunder.  The  blanket  in- 
surers concede  the  peculiar  character  which  in  gen- 
eral inheres  in  such  policies,  but  they  say  that  for 
the  purpose  of  the  contributing  clause  they  are  enti- 
tled to  an  apportionment  of  their  insurance  in  cases 
of  adjustment  in  connection  with  specific  insurers. 
We  fail  to  see  anything  in  this  claim  but  an  appeal 
from  the  contract  made  to  assume  principles  of 
fairness  and  equity.  It  certainly  does  not  rest  upon 
any  logical  foundation.  The  palpable  answer  to  it 
is  found  in  the  fact  that  the  question  is  one  of  legal 
construction  of  an  express  contract  obligation,  and 
not  of  equitable  determination.  The  parties  having 
made  a  contract,  the  courts  are  powerless  to  change 
it.  What  the  blanket  insurers  ask  is,  in  effect,  that 
there  be  read  into  .their  policies  a  provision  which 
is  not  there.  Had  the  parties  wished,  this  provision 
might  easily  have  been  incorporated.  It  was  not, 
and  the  contract  must  stand  as  made. 

Specific  or  Blanket. 

"We  have  thus  far  discussed  the  question  at  issue 
as  one  of  reason  and  not  of  authority.  The  analo- 
gous cases  are  few.  They  are,  however,  to  be  found. 
Concerning  them  it  has  to  be  confessed  that  the 
majority  which  have  arisen  under  the  operation  of 
the  prorating  clause  have  adopted  the  compound  in- 
surer's view.  It  is  noticeable,  also,  that  of  these  all, 
save  a  few,  state  the  proposition  as  a  dictum,  or 
simply  its  correctness  without  argument  or  reason 
therefor.  Such  are  the  cases  of  Blake  vs.  Insurance 
Co.,  12  Gray  272;  Cromie  vs.  Insurance  Co.,  15  B. 
Mon.  432;  Le  Sure  Lumber  Co.  vs.  Mutual  Fire  Ins. 
Co.,  101  Iowa  514,  70  N.  W.  761.  In  Chandler  vs! 
Insurance  Co.,  70  Vt.  562.  41  Atl.  502,  the  court  at- 
tempts to  give  a  reason  for  this  position.  It  is  con- 
tained in  these  words  only;  *As  by  their  terms  the 
specific  policies  can  not  be  converted  into  blanket 
policies,  it  necessarily  follows  that  the  only  way  in 
which  the  loss  can  be  adjusted  is  to  turn  the  blanket 
policies  into  specific  ones.'    This  is  a  clear  case  of  a 


34  THE  APPORTIONMENT  OP  LOSS  AND 

non  sequitur.  The  syllogism  involved  assumes  for 
its  major  premise  the  existence  of  a  necessity  which 
does  not  exist.  It  is  practically  as  simple  to  adjust 
a  loss  by  not  apportioning  as  by  apportioning  the 
blanket  insurance.  In  Ogden  vs.  Insurance  Co.,  50 
N.  Y.  388,  Am.  Rep.  492,  the  court  finds  its  rea- 
son in  the  fact  that  it  was  unreasonable  to  assume 
that  any  of  the  parcels  included  in  the  blanket  insur- 
ance were  over-insured  where  the  total  insurance 
was  not  in  excess  of  the  total  value.  What  method 
of  adjusting  this  argument  would  have  led  the  court 
to  adopt  had  concurrent  compound  policies  for  dif- 
ferent gross  sums  been  involved,  was  not  stated. 
An  assumption  of  that  situation  sufficiently  discloses 
the  fallacy  of  the  case.  Of  all  these  cases  it  is  to  be 
observed  that  none  attempt  to  lay  down  a  rule  of 
universal,  or  even  general  application.  They  treat 
each  case  by  itself,  conceding  that  in  the  next  the 
rule  might  not  apply.  The  trouble  has  been  that  in 
ignoring  the  contract  all  has  been  left  to  arbitrary 
and  uncertain  action,  which  fairness  and  equity  in 
the  given  cases  seems  to  indicate.  In  Page  vs.  In- 
surance Co.,  20  C.  C.  A.  397,  74  Fed.  203,  33  L.  R. 
A.  249,  the  other  side  of  this  question  is  distinctly 
avowed.  The  decision  is  put  squarely  upon  the 
terms  of  the  contract.  The  argument,  although  brief, 
is  substantially  that  which  had  guided  us.  The 
position  assumed  in  the  case  last  cited  seemed  to 
have  the  approval  of  Joyce  in  his  latest  work.  Joyce, 
Ins.  3457.  In  Sherman  vs.  Insurance  Co.,  39  Wis. 
104,  also,  this  doctrine  receives  at  least  implied 
sanction. 

ITEMS   MUST   BE   TAKEN    IN    SOME   ORDER. 

"One  other  point  remains  to  be  considered.  As 
the  existence  of  the  specific  policies  compels  the 
adjustment  of  the  loss  by  items,  these  items  must 
be  taken  up  in  some  order.  This  order  might  very 
materially  affect  the  result,  both  as  respects  the 
companies  and  the  insured,  since  that  portion  of  a 
blanket  policy  which  is  exhausted  in  the  settlement 
upon  the  first  item  no  longer  remains  to  be  applied 
to  the  second  item,  and  so  on  through  the  list.  This 
matter  of  order  is  one  upon  which  the  policies  in 
suit  and  policies  ordinarily  are  silent.  Evidently 
nothing  remains  but  some  arbitrary  selection,  in 
which  the  consideration  influencing  a  choice  should 
be  what,  on  the  whole,  under  the  conditions,  best 
satisfies  the  ends  of  fairness  and  justice  as  between 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     35 

the  companies,  the  assured  being  given  his  rightful 
amount  of  indemnity.  A  little  study  of  the  peculiar 
situations  which  may  arise  may  convince  one  that 
no  rule  of  universal  application  can  be  safely  laid 
down.  Whether  one  suggests  the  order  of  the  great- 
est losses,  or  of  the  least  losses,  or  the  order  of  the 
enumeration  in  the  special  insurance,  or  an  order  to 
be  determined  by  lot — two  at  least  of  which  methods 
appear  to  have  been  used — or  some  other  order,  he 
will  quite  likely  be  met  with  an  assumed  situation  in 
which  his  system  seems  to  fail  to  fully  accomplish 
equity  and  justice.  Fortunately  we  have  no  need  to 
search  for  a  universal  rule.  In  the  present  case  it 
matters  not  to  the  assured,  and  little  to  the  insurer, 
what  order  of  adjustment  is  adopted.  The  order 
first  indicated,  to-wit,  that  of  the  greatest  losses,  is 
one  which,  as  a  general  rule,  has  some  considera- 
tions in  its  favor.  In  this  case  it  works  out  substan- 
tial equity  and  justice  to  all  concerned.  We  there- 
fore select  it  for  the  purpose  of  this  case  as  on  the 
whole  the  best. 

"The  Superior  Court  is  advised  that  in  the  adjust- 
ment of  the  plaintiff's  loss  and  its  apportionment 
among  the  defendant  companies  the  items  upon 
which  there  was  loss  be  taken  up  in  the  order  of  the 
greatest  losses,  the  whole  property  being  divided  for 
this  purpose  into  items  corresponding  to  those  des- 
ignated in  the  specific  insurance;  that  in  computing 
the  total  amount  of  insurance  upon  the  first  item  the 
full  amount  of  the  blanket  insurance  be  applied,  and 
that  the  full  amount  of  any  given  blanket  policy  be 
regarded  as  the  amount  of  insurance  upon  the  item 
under  such  policy;  that  with  respect  to  the  second 
and  subsequent  items  the  same  rule  be  adopted, 
save  that  the  total  amount  of  insurance  thereon  be 
reduced  by  the  amount  of  blanket  insurance  already 
exhausted  in  the  settlement  upon  former  items,  and 
the  amount  of  insurance  under  any  given  blanket 
policy  likewise  reduced  by  the  amount  thereof  used 
in  prior  adjustments,  and  that  judgment  be  rendered 
against  the  several  defendants  according  to  the  re- 
sults thus  obtained.    The  other  judges  concurred." 

Apportionment  and  Contribution  in  Foregoing  Case. 
The  above  opinion  is  very  important  and  deserves 
the  careful  attention  of  any  person  interested  in 
this  subject,  and  as  it  will  be  more  easily  understood 
if  the  statement  of  insurance  and  loss,  and  the  ap- 
portionment and  contribution  are  shown  in  detail, 
I  will  give  them,  as  follows: 


36  THE  APPORTIONMENT  OF  LOSS  AND 

Statement. 

Specific  insurance: 

On  brewery   $1,634.88     Loss,  $15,115.00 

On  stock 1,839.21    Loss,     11,085.00 

On  machinery   1,498.64     Loss,     16,753.00 

On  shed  27.27     No  loss. 

Compound  insurance: 
On  brewery,  stock,  machin- 
ery, shed    $55,000.00 

Totals,  insurance   $60,000.00     Loss,  $42,953.00 

Under  the  rule  made  by  the  court  in  this  case  the 
loss  on  machinery  must  be  paid  first,  because  it  is 
larger  than  that  on  any  other  item. 

Apportionment  and  Contribution  on  Machinery. 

Compound  insurance    $55,000.00     Pays  $16,308.62 

Specific   insurance    1,498.64     Pays        444.38 

Total  loss  paid $16,753.00 

The  compound  insurance  pays  under  this  appor- 
tionment $16,308.62  on  machinery,  which  amount  de- 
ducted from  $55,000,  the  total  compound  insurance, 
leaves  $38,691.38  to  contribute,  with  $1,634.88,  the 
specific  insurance  on  brewery,  to  pay  a  loss  of  $15,- 
115.00,  which  is  the  second  largest  amount  of  loss. 

Apportionment  and   Contribution   on    Brewery. 

Compound   insurance    $38,691.38     Pays  $14,502.21 

Specific  insurance    1,634.88     Pays         612.79 

Total  loss   paid $15,115.00 

After  paying  the  loss  on  brewery  the  compound 
insurance  has  left  $24,189.17  to  contribute,  with  $1,- 
839.21,  the  specific  insurance  on  stock,  to  pay  a  loss 
of  $11,085.00. 

Apportionment   and    Contribution    on    Stock. 

Compound  insurance    $24,189.17     Pays  $10,301.71 

Specific   insurance    1,839.21     Pays         783.29 

Total   loss  paid $11,085.00 

The  amount  of  the  compound  insurance  left  after 
paying  the  losses  on  machinery,  brewery  and  stock 
is  $13,887.46,  which  would  have  to  contribute  with 
$27.27  specific  insurance  on  shed  to  pay  a  loss  on 
the  shed  if  it  had  been  damaged. 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     37 

The  compound  insurance  is  compelled  under  the 
application  of  this  rule  to  contribute  from  an  appor-. 
tionment  as  follows: 

On  machinery $55,000.00 

On  brewery 38,691.38 

On  stock  '. 24,189.17 


Total $117,880.55 

If  there  had  been  a  loss  on  the  shed,  the  compound 
insurance  of  $55,000  would  have  been  compelled  un- 
der the  application  of  this  rule  to  contribute  from 
$131,768.01,  which  is  nearly  three  times  the  amount 
of  insurance  the  policies  show  was  written,  and  that 
was  paid  for  by  the  assured. 

Compound   Better  for  Assured  than  Specific. 

We  are  led  to  believe,  from  the  court's  comments 
on  the  compound  insurance,  that  while  it  is  a  con- 
tract that  is  made  the  same  as  any  other  agreement 
where  an  indemnity  is  promised,  for  some  reason  its 
conditions  do  not  invite  the  same  degree  of  respect 
and  are  not  as  binding  on  the  contracting  parties  as 
those  of  the  more  specific  policies.  The  blanket  or 
compound  insurance  is  as  legal  an  agreement  as  the 
more  specific  insurance,  and  its  liability  is  fixed  by 
the  terms  of  the  contract,  and  the  conditions  are  as 
binding  on  the  insured  as  on  the  insurer,  and  these 
terms  and  conditions  possess  no  greater  force  and 
are  no  more  binding  on  the  contracting  parties  in  a 
policy  covering  one  item  specifically,  than  they  are 
in  a  policy  covering  more  than  one  item,  as  com- 
pound insurance.  It  is  true  that  a  compound  policy 
is  a  better  contract  for  the  assured  than  a  specific 
policy,  but  this  fact  does  not  change  in  the  least 
degree  the  legal  force  and  effect  of  a  compound 
policy. 

Under  this  form  of  policy  the  compound  insurance 
may  become  liable  for  a  loss  on  any  one  of  the  four 
items  equal  to  the  full  amount  of  the  compound  in- 
surance. If  the  property  had  been  so  situated  that 
one  fire  could  not  have  destroyed  or  damaged  more 
than  one  item,  this  compound  insurance  would  have 
been  nearly  as  good  as  four  specific  policies  for 
$55,000  each. 

This  is  the  old  English  rule,  which  was  in  use  in 
England,  and  also  Canada,  about  fifty-five  years  ago, 
except  that  it  has  been  slightly  changed  since  it  was 
introduced  into  this  country,  and  the  change  is  an 
Improvement,  because  it  reduces  the  maximum  con- 


38  THE  APPORTIONMENT  OF  LOSS  AND 

tributive  liability  of  the  compound  insurance.  There 
was  no  equity  in  the  English  rule,  but  when  the 
rule  was  applied  there  was  equity  in  its  application, 
because  each  and  every  item  specifically  insured  was 
treated  the  same.  There  is  no  equity  in  this  rule, 
for  one  item  which  is  specifically  insured  is  given, 
without  a  particle  of  reason,  an  advantage  over  the 
other  item  or  items  covered  by  specific  insurance. 

In  the  year  1860,  in  the  adjustment  of  a  loss  at 
Albany,  N.  Y.,  which  involved  some  complicated 
questions  under  compound  insurance,  some  twenty 
companies,  interested  in  the  adjustment,  adopted 
the  English  rule,  and  since  that  time  this  rule  in  this 
country  has  been  known  as  the  Albany  rule,  and  for 
a  few  years  after  this  Albany  adjustment  some  of 
the  New  York  companies  had  the  rule  printed  in 
their  policies. 

ALBANY   RULE. 

"If,  at  the  happening  of  any  fire,  the  assured  shall 
have  other  insurance  which  includes  the  premises  or 
property  herein  insured,  provided  such  policy  or 
policies  shall  at  any  time,  or  under  any  circum- 
stances or  contingency,  be  liable  to  the  insured  for 
any  amount  whatever,  such  policy  or  policies,  as 
between  the  insured  and  this  company,  shall  be 
considered  as  co-insurance  and  liable  to  contribu- 
tion, anything  in  said  policy  or  policies  to  the  con- 
trary notwithstanding." 

The  first  section  of  the  old  Rule  VI  is  the  same 
as  the  Albany  rule,  but  the  other  two  sections  of 
the  rule  make  it  more  liberal  to  the  assured. 

At  the  time  the  English  rule  was  applied  on  the 
Albany  loss  it  was  claimed  in  support  of  the  rule 
that:  "Specific  policies,  by  the  express  terms  thereof, 
have  a  legal  and  equitable  right  to  insist  and  de- 
mand that,  as  between  them  and  the  assured,  a  com- 
pound or  collective  policy  shall  contribute  with  them 
on  each  of  the  parcels  insured  specifically  by  them, 
and  that,  so  far  as  their  liability  is  to  be  deter- 
mined, the  collective  sum  is  to  be  regarded  as  con- 
tributing insurance  on  each  item  so  covered." 

This  is  a  statement  of  what  the  adjuster  who  was 
responsible  for  it  thought  about  the  Albany  rule, 
but  he  fails  significantly  to  give  any  reasons  why 
this  rule  should  be  used. 

At  the  same  time,  it  was  further  stated  by  an  ad- 
juster that:     "The  assured  has,  by  a  special  clause 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     39 

in  his  contract  with  the  specific  insurance,  equally 
binding  on  him  as  on  the  companies,  severally- 
agreed  with  each  of  them,  'that  in  case  of  loss  he 
shall  not  be  entitled  to  demand  or  recover,  on  a 
policy,  any  greater  proportion  of  the  loss  or  damage 
sustained  to  the  subject  insured  than  the  amount 
thereby  insured  shall  bear  to  the  whole  amount  in- 
sured on  the  whole  property.'  The  insured  has 
therein  stipulated  with  the  specific  insurance  as  be- 
tween him  and  the  companies  that  the  compound 
insurance  shall  contribute  with  each  of  them  on  the 
subject  specifically  insured  by  them ;  and  if  the 
amount  for  which  the  compound  insurance  is  thus, 
by  this  contract,  to  contribute  exceeds  the  amount 
of  its  policy,  the  loss  in  excess  of  its  policy  right- 
fully falls  on  the  assured  himself,  who  has,  by  his 
contract  with  the  specific  insurance,  especially  de- 
barred himself  from  the  right  to  recover  from  them, 
respectively,  a  greater  proportion  of  the  loss  than 
the  amount  insured  by  them  shall  bear  to  the  whole 
amount  insured  on  the  property  underwritten  by 
them." 

These  rules  are  the  English  and  Albany  rule, 
changed  so  that  the  compound  insurance  does  not 
contribute  from  its  full  amount  on  more  than  one 
item  that  is  covered  by  specific  insurance;  but  in 
any  event,  if  there  is  a  loss  on  more  than  one  item 
which  is  specifically  insured,  the  compound  insur- 
ance has  to  contribute  from  more  than  its  amount. 
This  is  positively  in  violation  of  the  pro  rata  con- 
tribution clause,  which  is  to  be  found  in  every  fire 
insurance  policy  issued  to-day,  and  in  some  of  the 
States  this  clause  is,  because  the  whole  policy  is,  a 
statute  and  a  law  of  the  State. 

PRO  RATA  CONTRIBUTION  CLAUSE. 

"This  company  shall  not  be  liable  under  this  policy 
for  a  greater  proportion  of  any  loss  on  the  described 
property  *  *  *  than  the  amount  hereby  insured  shall 
bear  to  the  whole  insurance  *  *  *  covering  such 
property." 

The  whole  insurance  contemplated  by  this  clause, 
as  it  seems  plain  to  me,  is  the  amount  named  in  the 
policy,  and  that  the  maximum  contributive  liability 
on  any  policy  is  the  amount  for  which  it  was  issued 
and  on  which  the  premium  was  based.  In  case  of 
compound  insurance,  the  courts  have  repeatedly  held 
that  the  specific  insurance  can  not  be  made  blanket. 


40  THE  APPORTIONMENT  OF  LOSS  AND 

therefore  the  compound  insurance  must  be  made 
specific. 

This  does  not  have  to  bfe  done  to  determine  the 
liability  of  the  compound  insurance,  but  it  becomes 
necessary  only  to  ascertain  the  amount  of  loss  to 
be  paid  by  the  specific  insurance. 

There  is  no  rule  for  the  apportionment  of  com- 
pound insurance  that  has  ever  been  used,  so  far  as 
I  know,  that  is  not  a  violation  of  the  pro  rata  con- 
tribution clause.  If  the  compound  insurance  were 
to  be  made  specific  on  the  basis  of  the  specific  in- 
surance, then  the  results  would  be  entirely  in  har- 
mony with  the  pro  rata  contribution  clause. 

The  most  that  we  can  expect  or  wish  for,  in  con- 
nection with  this  important  and  very  troublesome 
question,  is  to  have  some  rule,  which  is  equitable  in 
principle  and  in  its  application,  and  one  that  is  sus- 
ceptible of  the  most  general  application,  giving  the 
assured  the  full  amount  of  his  loss  if  it  is  equal  to 
or  exceeds  the  total  insurance  involved. 

THE   NEW  JERSEY  CASE. 

In  the  case  of  Grollimund  vs.  Germania  Fire  In- 
surance Co.,  decided  by  the  New  Jersey  Court  of 
Errors  and  Appeals,  on  August  22,  1912,  and  re- 
ported in  83  Atlantic  Reporter,  1108,  the  court  says: 

"A  policy  of  insurance  for  $2,000  on  'two  three 
story  frame  building  tin  roof,  and  its  additions  and 
foundation  walls,  while  occupied  as  dwellings,  Nos. 
69  and  71  East  Twlfth  street,  Paterson,  New  Jersey, 
and  being  $1,000  on  each  building,*  is  in  its  legal 
effect  a  specific  policy  of  $1,000  on  No.  69  East 
Twelfth  street  and  $1,000  on  No.  71  East  Twelfth 
street,  and  is  not  a  blanket  policy  on  both  Nos. 
69  and  71. 

"A  policy  of  insurance  for  '$2,000  upon  the  three- 
story  frame  building,  and  its  additions  adjoining 
and  communicating,  including  gas  and  water  pipes, 
heating  apparatus  and  all  permanent  fixtures,  while 
occupied  as  a  dwelling  house  and  situated  Nos.  69 
and  71  East  Twelfth  street,  Paterson,  New  Jersey,' 
is  not  a  specific  policy  on  No.  69  and  No.  71,  but  is  a 
blanket  policy  on  both,  and  covers  to  its  full  amount 
of  $2,000  both  on  No.  69  and  71. 

"In  distributing  the  loss  upon  two  parts  of  a  build- 
ing under  one  roof,  and  each  part  capable  of  being 
described  and  insured  by  street  numbers,  between 
an  insurance  policy  covering  both  parts  for  a  gross 
sum  and  a  policy  specifically  liable  on  each  part,  both 
of  which  policies   grant  permission  to   'effect   other 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     41 

insurance'  an  provide  that  the  liability  shall 
not  be  greater  'than  the  amount  hereby  insured 
shall  bear  to  the  whole  insurance/  the  blanket  policy 
should  be  regarded  as  insuring  each  part  to  the  en- 
tire amount  unappropriated  when  it  is  reached, 
making  the  adjustment  part  by  part  in  the  order 
of  the  greater  loss,  if  that  will  work  substantial 
equity  and  justice  to  all  concerned,  and  deducting 
the  sum  appropriated  to  the  part  as  it  is  adjusted  and 
passed/* 

In  this  decision,  the  court  makes  a  policy  of 
$2,000,  contribute  from  $3,200,  and  the  astonishing 
feature  in  connection  with  this  decision  is,  that  the 
judges  do  it  after  stating  the  conditions  of  the  pro- 
rata-contribution   clause. 

If  we  had  a  loss  in  this  case  of  $2,400,  on  building 
No.  69  and  $1,500  on  building  No.  71,  the  blanket 
insurance  would  contribute  from  $2,400,  and  though 
the  assured  gets  only  $3,800,  on  a  loss  of  $3,900,  the 
specific  insurance  has  a  salvage  of  $200. 

This  rule  is  so  unreasonable  and  unjust,  and  so 
clearly  in  violation  of  the  policy  conditions,  I  am 
surprised  when  I  hear  of  a  court  recognizing  it  as 
a  proper  one  to  iapply,  when  there  is  non-concurrent 
insurance. 

ARTICLE  FROM   FIREMAN'S  FUND  RECORD. 

The  Kinne  Rule,  for  the  apportionment  of  non- 
concurrent  insurance,  had  been  in  universal  use, 
by  agreement  of  the  insurance  companies,  on  the 
Pacific  Coast  for  many  years,  and  the  agreement  for 
the  continuation  of  its  use  has  been  made.  At  the 
time  the  new  agreement  was  being  discussed,  the 
Fireman's  Fund  Record  published  an  article  dealing 
with  the  decision  in  the  Connecticut  case  of  Schmaelzle 
vs.  London  &  Lancashire  Insurance  Co.,  and  in  this 
article,  the  Kinne  Rule  is  applied  to  the  appor- 
tionment problem  involved  in  this  decision.  This 
article  is  so  complete  in  the  handling  of  this  matter 
that  I  give  it  in  full: 

"At  the  last  annual  meeting  of  the  Fire  Under- 
writers' Association  of  the  Pacific,  a  committee  was 
appointed  to  solicit  all  managers  to  agree  on  the 
Kinne  rule  for  the  apportionment  with  contribution 
of  loss  under  non-concurrent  policies. 

"This  is  the  'Finn'  loss  to  loss  rule  of  'apportion- 
ment with  contribution'  of  general  insurance  under 
non-concurrent  policies  as  amended  by  Colonel  Kinne. 

"The  Kinne  amendment — the  Kinne  rule — provides 
for   the   re-apportionment    of   and    contribution    pro- 


42  THE  APPORTIONMENT   OP  LOSS  AND 


rata  from  unexhausted  insurance  to  exhaust  the 
same  or  to  pay  the  loss  in  full. 

''Underwriters  at  this  day  and  age  cut  a  sorry 
figure  before  the  people  and  the  courts,  in  having  no 
rule  to  carry  out  their  policy  contracts,  other  than 
the  rule  of  'devil  take  the  hindmost,'  'catch  as  catch 
can,'  'pull  dog,  pull  devil,'  'get  in  first  and  get  the 
advantage  of  the  other  company  or  of  the  claimant 
in  the  settlement.' 

"The  'loss  to  loss'  and  'value  to  value'  rules  of 
'apportionment  with  contributions'  of  the  general 
insurance  to  contribute  from  the  sums  so  apportioned 
to  items,  and  with  the  specific  sums  on  such  items, 
to  pay  the  losses  thereon;  and  the  Cromie,  Albany 
and  Schmaelzle  (decision)  rules  of  'contribution  with- 
out apportionment'  to  contribute  direct  from  the 
general  insurance  without  first  'apportioning'  same, 
were  each  adopted  to  fit  cases  at  issue;  but  neither 
one  of  these  rules  will  in  all  cases  exhaust  the  last 
applicable  dollar  to  the  payment  of  loss. 

"These  rules,  except  the  'Albany,'  are  backed  by 
different  judicial  decisions,  but,  as  in  each  case  the 
amount  of  insurance  was  in  excess  of  the  loss,  the 
question  of  shortage  on  any  item  did  not  come  before 
the  court. 

"The  Albany  rule  has  been  abandoned. 

"The  Cromie  rule  applies  to  and  exhausts  all  of  the 
general  insurance  in  cases  where  there  is  specific 
insurance  on  but  one  item. 

"The  Schmaelzle  decision  (Schmaelzle  vs.  Ins.  Co.) 
applies  the  total  of  the  general  policy  to  the  payment 
of  the  loss,  first:  'On  the  first  item,  the  full  amount 
of  the  blanket  (general)  insurance  is  to  be  consid- 
ered; on  the  second  item  such  amount  less  its  liabil- 
ity on  the  first  item;  and  so  on,  the  items  being 
taken  up  in  the  order  of  the  greatest  loss.' 

"The  figures  in  that  case  were:  Total  insurance 
on  buildings  and  contents,  $60,000;  31  policies  for 
$55,000  were  blanket  on  the  Drojierty,  and  $5,000  was 
specific,  as  follows:  Brewery  $1,635,  loss  $15,115; 
stock  $1,839,  loss  $11,085;  machinery  $1,499,  loss 
$16,753,  and  shed  $27,  no  loss. 

"The  decision,  without  first  'apportioning'  the 
blanket  (general)  insurance,  contributes  from 
blanket  and  specific  in  the  order  of  'machinery, 
largest  loss,'  No.  1.  'brewery,'  No.  2,  and  'stock,' 
No.  3. 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     43 

Statement  of  Loss  Under  Schmaelzle  Decision. 

No.    1 — Machinery.      Loss $16,753 


Specific  insurance    $   1,499  Pays        447     29% 

General  insurance  contributes  55,000  Pays  '16,306 


$16,753 


No.   2 — Brewery.     Loss $15,115 


Specific  insurance   $   1,635  Pays        621      37%-{- 

General  insurance  contributes  38,694  Pays  14,494 


$15,115 


No.    3 — Stock.      Loss $11,085 


Specific  insurance    $  1,839  Pays        783     42%  + 

General  insurance  contributes  24,200  Pays  10,302 


$11,085 
General  insurance,  $55,000,  contributes  on  a  basis 
of  $117,874,  pays  $41,102—75  per  cent. 

The  varying  percentages,  29  to  42  per  cent.,  as- 
sessed to  specific  insurances,  and  75  per  cent,  to 
tbe  general  insurance,  proves  conclusively  that  the 
Schmaelzle  decision  is  not  equitable  between  the  com- 
panies. 

Had  the  losses  been   $23,000,   $20,000   and   $16,000, 
respectively,  the  contributions  would  have  been: 
No.  1— Machinery.     Loss $23,00(> 


Specific  insurance  applies $  1,499     Pays..$      610 

General  insurance  applies 55,000     Pays..   22,390 


$23,000 
No.   2— Brewery     Loss $20,000 


Specific  insurance  applies $  1,635     Pays..$      955 

General  insurance  applies 32,610     Pays..   19,045 


$20,000 


No.   3— Stock.     Loss $16,000 


Specific  insurance  applies $  1,839     Pays..$  1.839 

General  insurance  applies 13,565     Pays. .  13,565 


Total    insurance    to    pay   loss $15  404 


44  THE  APPORTIONMENT  OF  LOSS  AND 

Insured  short 596 

$16,000 


The  total   loss  is $59,000 

The  total  insurance  to  apply  thereon  is 59,973 

The   total    payment    according    to    Schmaelzle 

decisioif  is 58,404 

Insured    is  $586    short,    with    unexhausted    in- 
surance          1 ,569 

A  bad  rule  for  the  Insured. 

•  **This  Schmaelzle  decision,  as  a  rule  of  law,  justice 
or  equity,  as  proven  in  these  examples,  fails  to  carry 
out  the  basic  principles  of  insurance,  which  are, 
*that  no  apportionment  of  loss  must  be  made  among 
companies  which  will  not  fully  indemnify  the  in- 
sured to  the  amount  of  the  insurance,  and  that  no 
company  can  have  a  salvage  at  the  expense  of  its 
fellow-company,  or  at  the  expense  of  the  claimant. 

"  'Apportionment  with  contribution'  of  this  loss  by 
the  Kinne  rule — the  'loss  to  loss  rule  with  the  Kinne 
ajnendment  reapportioning  from  excess  insurance  to 
pay  shortage' — would  he  as  follows: 

.  ,    J    ,                     ,  Re-apportionment 

Ailportionment  aud  ^^^  Contribution  to 

INSURANCE.                   contribution,  Loss  p^y  shortage  Kinne 

to  Loss,  Rule     A"  Rule  "B" 

No.  1 — Machinery. 

Loss     .. $23,000       $23,000 


Ins.  Pays  Ins.         Pays, 

Specific    $   1,499      $   1,499      $    1,499      $    1,499 

<>eneral    Appns 21,441        21,441        21,501        12,503 


Totals    $22,940      $22,940 

Insurance   short    60       


$23,000       $23,000      $23,000 

No.   2 — Brewery. 

Tx)ss     $20,000       $20,000 


Ins.  ^         Pavs  Ins.         Pays. 

Sp^ific    .$   1,635     •$    1,613      $   1,635      $    1,615 

-General  Appns 18,644        18,387        18,611        18,385 


$20,279  $20,000  $20,246  $20,000 

Unexhausted    balance     279  246       

No.   3 — Stock. 

Loss     $16,000       $16,000 


Ins.  Pays.  Ins.  Pays. 

Specific    $   1,839  $   1,756  $   1,839  $   1,759 

•Oeneral  Appns 14,915  14,244  14,888  14,241 

$16,754  $16,000  $16,727  $16,000 

Unexhausted    balance     754  727       


CONTRIBUTION  OF  COMPOUND  INSURANCE.     45 

Ins.         Pays. 

Specific $4,973      $4,873 

General    55,000       54,127 

Totals    $59,973      $59,000 

**The  'loss  to  loss'  rule  (A)  apportions  to  No.  1, 
machinery,  the  sum  of  $21,441  from  the  general  in- 
surance, which,  with  $1,499  specific  insurance  on  that 
item,  gives  $22,940  to  pay  loss  of  $23,000,  being  $60 
short. 

**The  excess  insurance  on  items  2  and  3,  also 
covered  by  the  general  insurance,  is  $279  and  $754, 
respectively. 

"The  reapportionment  under  the  *Kinne  rule'  (B) 
of  the  general  insurance  on  these  items,  $18,644  and 
$14,915,  respectively,  to  pay  the  $60  shortage  on  No. 
1,  being  $33  from  the  former  and  $27  from  the  latter, 
reduces  such  general  insurance  in  these  amounts  on 
items  2  and  3,  and  the  contribution  to  pay  the  losses 
on  the  items  is  made  (B)  as  shown  above. 

"This  principle  of  the  Kinne  rule,  reapportioning 
from  the  excess  insurance,  would  apply,  if  the  short- 
age had  been  $600  or  any  other  sum,  up  to  $1,033, 
which  would  have  exhausted  all  of  the  insurance. 

"Rules  of  'contribution  without  apportionment'  do 
not  work  in  all  cases. 

"The  Schmaelzle  decision    (rule)    speaks  for  itself. 

"The  'Cromie  rule'  exhausts  all  of  the  general 
insurance,  when  required  to  pay  the  loss,  but  as  it 
will  not  apply  in  cases  where  more  than  one  item  has 
specific  insurance,  it  can  not  be  considered  as  a  gen- 
eral rule. 

"The  'loss  to  loss'  rule  with  the  Kinne  amendment 
— the  Kinne  rule — fits  all  kinds  of  cases,  pays  the 
loss  or  exhausts  the  applicable  insurance,  and  being 
more  equitable  between  the  companies  than  any  of 
the  other  rules  in  the  books,  should  be  agreed  upon 
by  underwriters. 

"The  claimant  under  this  Kinne  rule  will  ha^ve  no 
cause  to  go  into  court;  and  the  companies,  by  agree- 
ing to  it,  will  establish  self-respect,  save  trouble,  and 
do  not  forfeit  any  rights  by  such  reciprocal  agree- 
ment." 

I  do  not  favor  the  compound  insurance  any  more 
than  the  specific.  Each  is  a  contract  in  writing,  and 
each  should  be  construed  according  to  the  language 
used,  and  to  carry  out  the  intent  of  the  parties  as 
expressed  in  the  agreement.  The  specific  insurance 
can  not  be  made  compound,  therefore  it  becomes 
necessary,  in  order  to  fully  indemnify  the  assured. 


46  THE  APPORTIONMENT  OF  LOSS  AND 

to  apply  a  forced  construction  to  the  compound  in- 
surance agreement,  and  make  it  conform  to  the  ne- 
cessities of  the  case,  to  such  an  extent  that  the  loss 
can  be  apportioned.  While  conceding  this,  I  con- 
tend that  the  conditions  of  the  compound  agree- 
ment are  as  sacred  and  as  obligatory  on  the  part  of 
the  contracting  parties,  as  are  those  of  the  specific 
agreement.  I  apprehend  this  will  not  be  denied. 
I  maintain,  therefore,  that  the  least  violation  of  the 
compound  agreement  should  be  approved  as  becomes 
absolutely  necessary  fully  to  indemnify  the  assured, 
and  yet  not  violate  the  conditions  of  the  specific 
contracts. 


PRO  RATA  CONTRIBUTION  CLAUSE. 

The  compound  and  specific  contracts  each  contain 
the  pro  rata  contribution  clause,  and  it  is  as  follows: 

"This  company  shall  not  be  liable  under  this  policy 
for  a  greater  proportion  of  any  loss  on  the  described 
property,  or  for  loss  by  and  expense  of  removal  from 
premises  endangered  by  fire,  than  the  amount  hereby 
insured  shall  bear  to  the  whole  insurance,  whether 
valid  or  not,  or  by  solvent  or  insolvent  insurers, 
covering  such  property,  and  the  extent  of  the  appli- 
cation of  the  insurance  under  this  policy  or  of  the 
contribution  to  be  made  by  this  company  in  case  of 
loss,  may  be  provided  for  by  agreement  or  condition 
written  hereon  or  attached  or  appended  hereto." 

I  ask  you  particularly  to  remember  that  the  pro 
rata  contribution  clause  as  given  in  full  above  is  in 
both  classes  of  policies,  and  that  it  possesses  the  same 
legal  force  in  one  class  as  in  the  other,  and  that  it 
is  absolutely  no  more  binding  as  a  legal  agreement 
in  one  class  of  policies  than  in  the  other. 

The  first  point  to  which  I  wish  to  call  your  atten- 
tion, in  construing  the  insurance  contract,  is  that 
all  of  the  compound  insurance  for  the  purpose  of 
paying  losses  covers  on  the  property  destroyed  or 
damaged. 

In  the  case  of  Page  Bros.  vs.  Sun  Insurance  Office, 
25  Ins.  Law  Journal  865,  decided  by  the  United 
States  Circuit  Court  of  Appeals,  the  court  says: 

"The  result  is  that,  under  a  clause  in  a  policy  of 
insurance  which  provides  that  the  company  shall  not 
be  liable  for  a  greater  portion  of  any  loss  on  the 
property  described  therein  than  that  which  the 
amount  insured  thereby  shall  bear  to  the  whole  in- 
surance covering  such  property: 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     47 

"First.  Compound  policies  insuring  the  property- 
described  in  such  a  policy,  and  other  property,  cover 
the  property  so  described  to  their  full  amount,  in 
case  of  a  loss  upon  the  property  described  in  the 
specific  policy,  and  no  loss  on  the  other  property 
described  in  the  compound  policies. 

"Second.  In  such  a  case  the  company  issuing  the 
specific  policy  is  liable  for  no  greater  proportion  of 
the  loss  than  that  which  the  amount  of  such  policy 
bears  to  the  total  amount  of  both  the  compound  and 
specific  policies  covering  the  property  it  describes." 


LE    SURE    LUMBER    CO.   CASE. 

In  the  case  of  The  Le  Sure  Lumber  Co.  vs.  Mutual 
Fire  Ins.  Co.,  70  Northwestern  Reporter  761,  the 
Supreme  Court  of  Iowa  says: 

"The  policy  was  designed  to  secure  the  plaintiff 
against  loss  by  fire  in  any  one  or  all  of  the  yards  to 
the  full  amount  6f  the  policy.  It  covered  all  of  the 
property  which  was  destroyed,  and,  if  it  is  paid  in 
full,  it  will  not  fully  compensate  the  plaintiff  for  the 
loss  sustained.  In  ascertaining  the  amount  of  insur- 
ance, for  the  purpose  of  an  apportionment,  it  would 
be  just,  in  the  absence  of  a  stipulation  to  the  con- 
trary, to  consider  only  the  insurance  on  the  prop- 
erty injured  or  destroyed;  and  it  will  be  presumed 
in  the  absence  of  a  showing  to  the  contrary  that 
the  parties  to  the  contract  provide  for  a  just  result. 
The  language  they  use  does  not  necessarily  mean 
that  in  case  of  loss  the  defendant  should  only  be 
liable  for  such  proportion  of  it  as  the  amount  it 
insured  was  of  the  total  insurance  on  all  of  the 
property  described  in  its  policy,  whether  the  concur- 
rent insurance  was  on  all  of  the  property  or  only  a 
part  of  it.  We  think  a  permissible,  and  the  correct, 
interpretation  of  the  policy  is  that  in  case  of  a  loss 
the  defendant  was  not  to  be  liable  for  a  greater  pro- 
portion of  it  than  the  amount  of  its  policy  bore  to 
the  total  insurance  on  the  proportion  injured  or  de- 
■stroyed.  It  is  true  the  words  'described  property,' 
if  not  modified,  refer  to  all  of  the  property  covered 
I)y  the  policy,  and  the  phrase  'covering  such  prop- 
erty* is  equally  comprehensive;  but  considered  in 
their  relation  to  the  word  'loss,'  and  the  purpose  for 
which  the  policy  was  issued,  we  are  of  the  opinion 
that  they  should  be  held  to  refer  to  property  which 
should  be  injured  or  destroyed." 


48  THE  APPORTIONMENT  OF  LOSS  AND 

"AMOUNT  INSURED"  AND  "TOTAL  INSURANCE" 

The  next  point  for  consideration,  as  I  view  this 
question,  is  as  to  what  is  meant  by  the  words 
*'amount  insured"  and  "total  insurance,"  as  used  in 
the  pro  rata  contribution  clause,  as  follows: 

"This  company  shall  not  be  liable  under  this  pol- 
icy for  a  greater  proportion  of  any  loss  on  the  de- 
scribed property,  or  for  loss  by  and  expense  of 
removal  from  premises  endangered  by  fire,  than  the 
amount  herehy  insured  shall  bear  to  the  whole  in- 
surance, whether  valid  or  not,  or  by  solvent  or  in- 
solvent insurers,  covering  such  property,  and  the 
extent  of  the  application  of  the  insurance  under  this 
policy  or  of  the  contribution  to  be  made  by  this 
company  in  case  of  loss,  may  be  provided  for  by 
agreement  or  condition  written  hereon  or  attached 
or  appended  hereto." 

In  the  case  of  the  Farmers'  Feed  Company  vs. 
Scottish  Union  &  National  Ins.  Co.,  65  Northwestern 
Reporter  ly05,  decided  January  13,th,  1903,  by  the 
Court  of  Appeals  of  New  York,  the  court  says: 

"The  decision  of  the  controversy  turns  on  the 
meaning  of  the  words  'whole  insurance,*  as  used  in 
the  apportionment  clause  of  the  defendant's  policy. 
It  was  there  provided  that  the  defendant  should  not 
be  liable  for  a  greater  proportion  of  any  loss  than 
the  amount  insured  by  its  policy  shall  bear  to  the 
whole  insurance  on  the  property." 

"The  four  companies  stipulated  that  they  should 
'be  liable  for  no  greater  proportion'  of  the  loss, 
which  was  $45,321.18,  'than  the  sum  hereby  insured,' 
or  $17,500,  'bears  to  80  per  cent,  of  the  cash  value  of 
the  property,'  which  was  $99,728.  Their  liability, 
therefore,  is  represented  by  the  following  propor- 
tion: As  $99,728  is  to  $17,500,  so  is  $45,321.18  to  the 
amount  required,  or  $7,952.84.  Was  this  'the  whole 
insurance'  effected  •  by  the  four  policies  containing 
the  co-insurance  clause?  If  so,  that  clause  has  no 
effect  in  this  case.  We  think  it  was  not,  for,  if  the 
loss  had  been  greater,  the  amount  called  for  by  the 
policies  would  have  been  greater  also,  and  yet  it 
would  not  have  exceeded  the  amount  of  insurance. 
The  largest  sum,  which  in  any  event,  can  he  col- 
lected under  a  policy,  and  not  the  smaller  sum  which 
may  be  collected  under  special  circumstances,  is  the 
amount  of  insurance  effected  hy  the  policy.  There 
is  no  limit  to  the  possible  liability  under  the  four 
policies,  except  the  amount  that  the  companies  stip- 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     49 

ulate  it  should  not  exceed,  aggregating  $17,500, 
which  they  would  have  been  obliged  to  pay  if  the 
loss  had  been  total. 

"The  amount  of  insurance,  therefore,  is  the  largest 
sum  that  the  company,  under  any  circumstances, 
according  to  the  terms  of  the  policy,  can  he  required 
to  pay.  This  is  the  popular  understanding  as  well 
as  the  legal  definition." 

Amount  of  Insurance  the  Same. 

"The  amount  of  insurance  is  at  all  times  the  same, 
but  when  the  loss  is  partial  the  insurer  stands  only 
a  part,  unless  the  insurance  is  for  the  full  percent- 
age; whereas,  if  the  loss  is  total,  the  insurer  stands 
all,  not  exceeding  the  limit  stated  in  the  policy. 
That  limit  is  the  amount  of  insurance  made  by  the 
policy,  because  the  company  may  be  required  to  pay 
to  that  extent.  The  words  of  the  co-insurance  clause, 
viz.,  'the  sum  hereby  insured,'  indicate  the  amount  of 
insurance.  That  sum  is  fixed,  definite  and  always 
the  same." 

"For  the  purpose  of  apportionment,  the  face  values 
of  the  policies  should  be  resorted  to,  regardless  of 
the  cash  value  of  the  property,  and  thus  the  whole 
amount  of  the  insurance  can  be  ascertained  by  a 
simple  inspection  of  the  policies.  The  face  value 
of  a  policy  is  not  reduced  by  the  actual  value  of  the 
property,  or  by  the  duty  of  apportioning  the  loss,  or 
by  the  effect  of  a  co-insurance  clause  in  another 
policy  on  the  same  property.  The  amount  of  insur- 
ance is  fixed  at  the  inception  of  the  policy,  but  the 
amount  of  liability  is  not  fixed  until  a  loss  has  oc- 
curred. The  one  depends  upon  the  sum  for  which 
the  policy  is  written,  but  the  other  depends  upon  a 
number  of  contingencies  which  may  or  may  not 
happen,  and  hence  can  not  be  known  in  advance. 
The  fact  that  they  are  not  known,  and  may  never 
come  into  existence,  does  not  affect  the  amount  of 
the  policy." 

Two  Questions  in  Case  of  Stephenson  vs.  Agricultural. 

In  the  case  of  Isaac  Stephenson  et  al.,  Executors, 
vs.  Agricultural  Ins.  Co.,  decided  by  the  Wisconsin 
Supreme  Court,  in  January,  1903,  the  court  says: 

"This  appeal  calls  for  the  solution  of  two  ques- 
tions concerning  the  construction  of  significant 
words  in  this  part  of  Sections  1941-58,  R.  S.  1898: 


60  THE  APPORTIONMENT  OF  LOSS  AND 

"  *This  company  shall  not  be  liable  under  this 
policy  for  a  greater  proportion  of  any  loss  on  the  de- 
scribed property  *  *  *  than  the  amount  hereby  in- 
sured shall  bear  to  the  whole  insurance,  whether 
valid  or  not.* 

These  are  the  questions:  1.  Do  the  words  'amount 
hereby  insured'  refer  to  the  face  of  the  policy — the 
maximum  of  the  risk  assumed  under  any  or  all  cir- 
cumstances? 2.  Do  the  words  *whole  insurance'  re- 
fer to  the  aggregate  of  the  maximum  risks  assumed 
by  all  insurers  in  respect  to  the  property?  Affirma- 
tive answers  will  lead  to  an  affirmance  of  the  judg- 
ments. 

"What  has  been  said  as  to  what  constitutes  the 
amount  of  the  insurance  under  that  part  of  the 
standard  policy,  as  regards  Sections  1941-43,  R.  S. 
1898,  applies  to  that  part  embodying  Sections  1941-58 
id.  Note  the  plain  distinction  in  the  latter  section 
between  'amount  hereby  insured,'  or  'whole  insur- 
ance,' and  'loss':  'This  company  shall  not  be  liable 
under  this  policy  for  a  greater  proportion  of  any 
loss  *  *  *  than  the  amount  hereby  insured  shall 
bear  to  the  whole  insurance.'  To  say  that  the  terms 
'liability,'  'loss,'  and  'amount  insured,'  or  'whole  in- 
surance,' are  synonymous,  or  that  the  amount  of  in- 
surance is  undeterminable  in  advance  of  loss,  is 
well-nigh,  if  not  quite  absurd.  The  language  of  the 
section  as  a  whole  is  too  plain  to  admit  of  any  re- 
sort to  rules  for  judicial  construction  to  determine 
its  meaning.  As  indicated,  'loss'  refers  to  the  dam- 
ages of  the  assured  measured  in  money;  'liable,'  or 
'liability,'  to  the  amount  of  such  loss  which  the  suf- 
ferer, under  the  insurance  contract,  may  recover 
upon  the  policy,  and  'amount  hereby  insured'  to  the 
risk  assumed  under  the  policy — the  amount  which, 
regardless  of  any  loss  paid,  remains  subject  to  be 
drawn  upon  from  time  to  time  to  satisfy  other  losses 
till  it  shall  have  been  wholly  exhausted. 

"The  words  'amount  of  insurance*  and  'amount 
insured'  are  used  in  the  80  per  cent,  clause  in  a  way 
to  clearly  indicate  that  they  refer  to  the  maximum 
risk  assumed,  the  $7,500.  Here  is  the  language: 
'If,  at  the  time  of  the  fire,  the  whole  amount  of  in- 
surance on  said  property  shall  be  less  than  80  per 
cent.,  this  company  shall,  in  case  of  loss  or  damage 
less  than  said  80  per  cent.,  be  liable  only  for  such 
portion  thereof  as  the  amount  insured  by  this  policy 
shall  bear,'  etc.  There  can  be  no  mistaking  the  con- 
nection between  the  significant  words  in  that  clause 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     51 

and  the  maximum  risk  assumed  by  the  company  and 
by  all  the  companies. 

MAXIMUM   AMOUNT  OF   RISK   ASSUMED. 

'There  is  abundance  of  authority  supporting  the 
conclusions  that  'amount  hereby  insured/  and  simi- 
lar expressions  as  regards  a  particular  policy,  mean 
maximum  amount  of  risk  assumed;  that  'the  whole 
insurance,'  and  similar  expressions  as  to  any  given 
parcel  of  property  covered  by  several  policies  of 
insurance,  with  or  without  a  limitation  of  liability 
clause  similar  to  the  one  in  the  Milwaukee  Mechan- 
ics' Insurance  Company  policy,  mean  the  aggregate 
maximum  risks  assumed  under  all  the  policies,'' 

It  is  very  evident  from  the  strong  language  used 
by  the  courts  in  these  two  cases,  that  the  amount 
hereby  insured  when  applied  to  the  compound  in- 
surance in  this  case,  means  $55,000,  and  that  the 
whole  insurance  means  the  total  amount^  of  insur- 
ance named  in  the  policies,  and  not  one  cent  more, 
which  in  this  case,  there  being  no  loss  on  the  shed, 
would  be  $59,972.73. 

TWO    IMPORTANT   PROPOSITIONS. 

The  decisions  referred  to  herein,  which  were  ren- 
dered by  the  United  States  Circuit  Court  of  Appeals, 
the  Supreme  Court  of  Iowa,  the  Supreme  Court  of 
Wisconsin,  and  the  New  York  Court  of  Appeals, 
very  clearly  establish  two  propositions,  and  though 
both  of  them  are  of  the  utmost  importance  in  con- 
sidering the  questions  involved  in  this  Connecticut 
case,  the  court  ignored  them  entirely  in  the  decision. 

The  first  one  of  these  propositions  is  that  all  of 
the  compound  insurance  for  the  purpose  of  paying  a 
claim  for  loss  or  damage,  covers  only  on  the  prop- 
erty which  is  destroyed  or  damaged.  The  second  is 
that  the  words  "amount  hereby  insured''  mean  max- 
imum amount  of  risk  assumed,  or  the  largest  amount 
which  in  any  event  can  be  collected  under  a  policy, 
and  this  is  the  amount  of  insurance  effected  by  the 
policy.  Also  that  the  words  "whole  insurance" 
mean  as  to  any  parcel  of  property  covered  by  insur- 
ance, the  aggregate  maximum  risks  assumed  on  the 
property,  under  all  the  policies. 

In  view  of  the  above  decisions,  what  is  the  liabil- 
ity of  the  compound  insurance  involved  in  the  Con- 
necticut opinion?     The  statement  shows  that  there 


52  THB  APPORTIONMENT  OF  LOSS  AND 

was  no  loss  on  the  shed,  which  was  specifically  in- 
sured for  $27.27,  and  this  therefore  leaves  $4,972.73 
specific  insurance,  covering  on  brewery,  stock  and 
machinery,  to  contribute  with  $55,000  compound  in- 
surance to  pay  a  $42,953  loss. 

Apportionment  and  Contribution   on   Brewery,   Stock 
and   iVIachinery. 

Compound  insurance    $55,000.00     Pays  $39,391.48 

Specific   insurance    4,972.73     Pays     3,561.52 


Total  insurance  of ...  .$59,972.73     Pays  $42,953.00 
Under   the    strict   legal   construction   of   the    com- 
pound agreement,  we  find  that  this  class  of  insur- 
ance pays  $39,391.48  loss. 

We  find  when  comparing  the  last  apportionment 
with  them,  made  under  the  ruling  of  the  court  in  the 
Connecticut  case,  that  under  the  last  apportionment 
the  compound  insurance  pays  $39,391.48,  which  is 
5.500.000/5,997,273  of  $42,973,  the  total  loss.  That 
under  the  first  apportionments  the  compound  insur- 
ance paid  $41,112.54  loss,  or  $1,721.06  more  than  un- 
der the  last.  I  contend  that  there  is  no  legal  or 
equitable  reason  why  the  compound  insurance  should 
be  slaughtered  in  this  way,  and  made  to  pay  nearly 
50  per  cent,  of  the  loss  which  should  be  paid  by  the 
specific  insurance.  The  legal  liability  of  the  com- 
pound insurance  is  $39,391.48,  and  that  rule  which 
will  produce  approximately  this  result  and  let  the 
specific  insurance  contribute  from  the  specific 
amounts,  and  which  is  susceptible  to  the  most  gen- 
eral application,  is  in  my  judgment  the  one  the 
companies  should  adopt  and  the  courts  apply. 

To  say,  as  the  court  does  in  this  Connecticut  de- 
cision, that  a  total  insurance  of  $55,000  covers  at 
one  and  the  same  time  $55,000  on  machinery,  $38,- 
691.38  on  brewery,  $24,189.17  on  stock,  and  $13,887.- 
46  on  shed,  is  as  unreasonable  and  impossible  as  it 
would  be  to  say  that  fifty-five  gallons  of  water  could 
be  made  to  fill  at  one  and  the  same  time  four  tanks, 
one  of  fifty-five  gallons,  one  of  thirty-nine  gallons, 
one  of  twenty-five  gallons  and  one  of  fourteen  gal- 
lons. It  strikes  me  that  the  contention  which  is 
made  in  support  of  this  rule  is  not  only  unreason- 
able and  inconsistent,  but  illegal.  This  is  certainly 
reading  conditions  into  the  contracts  which  are  not 
there,  and  were  not  intended  by  either  party  when 
the  contracts  were  made,  to  be  forced  into  them  and 
made  a  part  thereof. 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     53 

Compound   Does   Not  Cover  in    Full   Where  There   Is 
Specific. 

The  United  States  Circuit  Court  of  Appeals,  in  the 
case  of  Page  Bros.  vs.  Sun  Insurance  Office,  25  Ins. 
Law  Journal  865,  says:  ''Compound  policies  insur- 
ing the  property  described  in  such  a  policy,  and 
other  property,  cover  the  property  so  described  to 
their  full  amount,  in  case  of  a  loss  upon  the  property 
described  in  the  specific  policy  and  no  less  on  the 
other  property  described  in  the  compound  policies." 

From  the  language  used  in  the  decision  in  the 
Page  Bros,  case,  it  is  clearly  evident  that  the-  court 
would  hold  that  the  $55,000  compound  insurance 
would  not  cover  for  its  full  amount  on  machinery, 
or  any  one  of  the  three  items  on  which  there  was  a 
loss,  but  that  the  $55,000  compound  insurance  would 
cover  on  all  of  the  three  items  on  which  there  was 
a  loss.  In  other  words,  if  I  correctly  understand  this 
decision,  the  court  decides  that  if  the  compound  in- 
surance covers  property  which  is  specifically  in- 
sured, and  the  loss  is  on  property  which  is  specifi- 
cally insured,  and  on  other  property  which  is  covered 
by  the  compound  insurance,  then  the  compound  in- 
surance does  not  cover  for  its  full  amount  on  the 
property  specifically  insured.  If  the  loss  in  the  Con- 
necticut case  had  been  only  on  machinery,  then  all 
of  the  $55,000  compound  insurance  would  have  cov- 
ered for  the  purpose  of  paying  the  loss  on  machin- 
ery, but  as  there  were  losses  on  brewery  and  stock, 
only  a  part  of  the  $55,000  compound  insurance  cov- 
ered on  machinery,  and  not  the  whole  of  it,  as  de- 
cided by  the  court. 

In  1854  an  effort  was  made  to  have  the  rule  used 
by  the  Connecticut  court  applied  to  a  case  in  Ken- 
tucky. This  rule,  with  others,  was  considered  by 
the  court,  and,  though  the  attorney  made  a  strong 
argument  for  the  rule,  the  court  declined  to  adopt 
it.  This  was  the  case  of  Cromie  vs.  Kentucky  & 
Louisville  Mutual  Ins.  Co.,  15  B.  Monroe  (Ky.)  432. 
The  attorney  for  the  insurance  company  said: 

*'The  Kentucky  &  Louisville  Mutual  Insurance 
Company  issued  a  policy  on  Cromie's  paper  mill  for 
$5,000.  An  addition  to  the  mill  was  subsequently 
built  and  both  buildings  were  insured  together  in 
other  offices  for  $7,000  besides,  maging  the  total  sum 
insured  $12,000.  Both  buildings  were  damaged  by 
fire,  and  this  company  has  paid  five-twelfths  of  the 
loss   on   the   old   building.     The   question   presented 


54  THE  APPORTIONMENT  OF  LOSS  AND 

and  decided  below  was  as  to  the  mode  of  adjusting 
the  loss,  and  by  agreement  the  same  question  is  pre- 
sented here. 

"If  the  new  building  alone  had  burned,  this  insur- 
ance company  would  not  have  been  bound  for  any 
part  of  the  loss,  because  that  building  was  not  em- 
braced in  her  policy.  If  the  old  building  alone  had 
burned,  she  would  have  been  liable  for  only  five- 
twelfths  of  the  loss  not  exceeding  the  sum  by  her 
insured.  Now,  when  both  buildings  bum,  if  a  rule 
of  adjustment  is  fixed  whereby  this  company  pays 
more  than  if  the  old  building  alone  had  burned,  to 
that  extent  she  is  made  to  pay  for  the  loss  on  the 
new  building,  which  is  not  embraced  in  her  policy. 

"The  other  underwriters  can  not  justly  complain 
of  the  mode  of  adjustment  proposed  above.  As  to 
them  the  risk  is  a  unit.  Their  policies  embrace 
both  buildings  as  a  whole,  and  they  have  no  more 
right  to  apportion  their  risk  on  the  constituent  parts 
of  the  building  insured  than  upon  its  rooms  or  sto- 
ries. Let  the  loss  fall  upon  what  part  or  parcel  it 
may,  they  must  make  good  their  contract  with  Cro- 
mie.  True,  their  pro  rata  might  be  larger  if  only 
the  portion  not  embraced  in  this  policy  should  burn 
than  if  the  other  alone  burned,  for  in  the  first  case 
the  contribution  would  be  by  sevenths,  and  in  the 
last  by  twelfths;  but  this  results  from  their  con- 
tract, and  truly  this  insurance  company  is  not  an 
underwriter  for  them." 

In  the  case  of  Angelrodt  &  Barth  vs.  Delaware 
Mutual  Ins.  Co.,  31  Mo.  5.93,  decided  in  1862,  the 
same  rule  was  considered.  The  policy  of  one  com- 
pany covered  on  merchandise,  and  the  other  policy 
covered  on  merchandise,  their  own  and  held  on  stor- 
age. There  was  a  loss  on  their  own  merchandise 
and  also  on  the  merchandise  held  on  storage.  The 
court  was  asked  to  make  the  compound  policy  con- 
tribute from  its  full  amount,  with  the  specific  insur- 
ance on  merchandise  to  pay  the  loss  on  merchandise. 
The  court  refused  to  apply  the  rule,  and  applied 
what  is  known  as  the  Cromie  rule. 

In  1872  the  Supreme  Court  of  the  State  of  New 
York,  in  the  case  of  Ogden  vs.  Insurance  Co.,  50  N. 
Y.  388,  considered  this  rule,  and  the  court  said: 
"Where  several  parcels  of  property  are  insured  to- 
gether for  an  entire  sum,  it  is  impossible  to  say  as 
to  either  of  the  parcels  that  there  is  no  insurance 
upon  it." 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     56 

The  court  also  said  in  this  case:  "Neither  can  we 
agree  to  the  doctrine  contended  for  by  the  counsel 
for  the  appellant,  that  the  whole  sum  insured  by  the 
more  comprehensive  policy  is  to  be  considered  as  so 
much  additional  insurance  upon  the  parcels  sepa- 
rately insured." 

In  the  Connecticut  case  there  is  $1,498.64  specific 
insurance  covering  on  the  machinery  with  a  loss  of 
$16,753,  and  here  we  are  confronted  with  one  ques- 
tion that  is  difficult  to  solve,  and  that  is,  what  is  the 
^'wJiole  insurance''  covering  on  the  machinery?  It 
can  not  be  $55,000,  for  that  in  this  case  is  the  total 
compound  insurance  covering  on  machinery,  brewery 
and  stock.  We  can  not  make  the  specific  insurance 
compound  insurance,  and  therefore  here  is  where  we 
must  to  a  certain  extent  violate  the  conditions  of  the 
compound  insurance,  and  arbitrarily  determine  what 
part  of  this  $55,000  compound  insurance  covers  on 
the  machinery.  I  advocate  applying  a  rule  which,  in 
its  application,  violates  to  the  least  extent  the  terms 
and  conditions  of  the  compound  insurance,  and  which 
is  susceptible  of  the  most  general  application  in  this 
class  of  propositions. 

A    DISCRIMINATION. 

I  contend  that  it  is  less  a  violation  of  the  com- 
pound insurance  contract  to  make  it  specific  on  the 
basis  of  the  loss  than  it  is  to  do  as  the  court  has" 
done  in  this  Connecticut  case,  and  say  that  $55,000^ 
insurance  should  be  made  to  contribute  from  $131,- 
768.01,  and  that  one  of  four  items  covered  by  specific 
insurance  is  entitled  to  an  advantage,  such  as  is^ 
given  over  the  other  items.  There  is  not  a  word  im 
the  policy  which  even  gives  an  intimation  that  $55,- 
000  compound  insurance  should  be  made  to  contriliy- 
ute  from  $131,768.01,  but  the  wording  of  the  pro  rata 
contribution  clause  shows  that  the  "amount  herehy 
insured''  in  this  case  means  $55,000.  There  is  not  a 
word  in  the  policy  which  shows  that  the  specific  in- 
surance on  machinery  is  entitled  to  any  advantages 
over  the  specific  insurance  on  brewery  or  stock.  If 
the  specific  insurance  on  machinery  is  entitled  to 
have  the  compound  insurance  contribute  from  $55,- 
000,  then  the  specific  insurance  on  brewery  and  stock 
is  entitled  to  the  same  consideration  and  treatment. 

In  this  Connecticut  case  the  blanket  insurers  asked 
to  have  the  compound  insurance  made  specific  on  the 
basis  of  the  loss  or  sound  value.  In  answering  this 
question,  the  court  says:     "What  the  blanket  insur- 


56  THE  APPORTIONMENT  OP  LOSS  AND 

ers  ask  is,  in  effect,  that  there  be  read  into  their 
policies  a  provision  which  is  not  there.  Had  the  par- 
ties wished,  this  proposition  might  easily  have  been 
incorporated.  It  was  not,  and  the  contract  must  stand 
as  made."  It  is  conceded  by  me  that  the  policies  do 
not  provide  for  making  the  compound  insurance  spe- 
cific on  the  basis  of  loss  or  sound  value.  It  is  at  the 
same  time  contended  by  me  that  the  policies  do  not 
provide  for  making  $55,000  compound  insurance  con- 
tribute from  $131,768.01,  and  furthermore  they  do  not 
provide  that  one  item  specifically  insured  should  have 
such  an  advantage  over  another  item  similarly  in- 
sured, as  the  court  gave  in  this  case  to  the  specific 
insurance  on  machinery,  over  the  specific  insurance 
on  brewery  and  stock,  and  to  the  specific  insurance 
on  machinery  and  brewery  over  the  specific  insurance 
on  stock. 

COMPOUND    SPECIFIC   ON    BASIS    OF    LOSSES. 

If  we  apply  the  rule  which  makes  the  compound 
insurance  specific  on  the  basis  of  the  losses,  we  have 
15.115/42,953  of  $5,000,  or  $19,354.30  covering  on 
brewery;  11,085/42,953  of  $55,000,  or  $14,194.00  cov- 
ering on  stock,  and  16,753/42,953  of  $55,000,  or  $21,- 
451.70  covering  on  machinery. 

Apportionment  and   Contribution   on    Brewery. 

Compound  insurance  $19,354.30     Pays  $13,937.67 

Specific  insurance   1,634.88     Pays      1,177.33 

Total   insurance  of $20,989.18     Pays  $15,115.00 

Apportionment   and    Contribution    on    Stock. 

Compound  insurance  $14,194.00     Pays    $9,813.41 

Specific  insurance   1,839.21     Pays     1,271.59 

Total  insurance  of $16,033.21     Pays  $11,085.00 

Apportionment  and  Contribution  on   Machinery. 

Compound  insurance $21,451.70     Pays  $15,659.04 

Specific  insurance   1,498.64     Pays      1,093.96 

Total  insurance  of $22,950.34     Pays  $16,753.00 

The  compound  insurance  insures  and  pays  under 
the  above  apportionments  as  follows: 

On  brewery,   insurance $19,354.30     Pays  $13,937.67 

On  stock,  insurance 14,194.00     Pays      9,813.41 

On  machinery,  insurance..   21,451.70     Pays    15,659.04 

Total  insurance  of $55,000.00     Pays  $39,410.12 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     57 

We  have  found  that  the  liability  of  the  compound 
insurance  under  the  pro  rata  contribution  clause, 
which  fixes  its  limit  of  liability  at  such  a  part  of  the 
loss  as  the  amount  insured  bears  to  the  whole  insur- 
ance to  be  5,500,000/5,997,273  of  $42,953.00,  or  $39,- 
391.48.  Under  the  application  of  the  rule  making  the 
compound  insurance  specific  on  the  basis  of  the  losses, 
we  make  it  pay  $39,410.12,  which  is  $18.64  more  than 
its  actual  legal  liability,  as  shown  by  the  statement 
made  in  detail  herein. 

A  QUESTION  OF  REASON  AND  NOT  OF 
AUTHORITY. 

In  the  Connecticut  case  the  court  admits  that  a 
majority  of  the  decisions  are  against  the  rule  which 
It  applies,  and  on  this  subject  it  says:  "We  have 
thus  far  discussed  the  question  at  issue  as  one  of 
reason,  and  not  of  authority.  The  analogous  cases 
are  few.  They  are,  however,  to  be  found.  Concern- 
ing them  it  has  to  be  confessed  that  the  majority 
which  have  arisen  under  the  operation  of  the  pro 
rating  clause  have  adopted  the  compound  insurers' 
view.  It  is  noticeable,  also,  that  of  these  all  save  a 
few  state  the  proposition  as  a  dictum,  or  simply  its 
correctness  without  argument  or  reason  therefor." 

The  court  furthermore  says:  "It  is  practically  as 
simple  to  adjust  a  loss  by  not  apportioning  as  by  ap- 
portioning the  blanket  insurance."  If  the  court  had 
been  able  to  proVe  the  truth  of  this  statement  and 
had  proven  that  it  could  be  done  without  violating 
the  contracts,  the  opinion  would  have  been  very  val- 
uable to  the  insurance  fraternity.  It  can  not  be  de- 
nied that  the  court  succeeded  in  determining  the 
liability  of  the  companies  interested  in  this  case 
without  an  apportionment,  but  it  has  to  be  admitted, 
hecause  it  is  true,  that  the  court,  in  order  to  do  so, 
grossly  violated  two  well-known  conditions  of  the 
contracts. 

In  order  to  show  what  could  happen,  in  the  appli- 
cation of  this  rule,  I  will  apply  it  to  an  assumed 
case. 

Statement  of  Loss. 

Insurance: 

^tna,  on  wheat $10,000     Loss  $18,000 

Continental,  on  corn 10,000     Loss    17,991 

Home,  on  grain 20,000     Loss   

Total  insurance    $40,000     Loss      $35,991 


58  THE  APPORTIONMENT  OF  LOSS  AND 

In  this  assumed  case,  we  have  the  largest  amount 
of  loss  on  wheat,  which  is  specifically  insured  under 
the  ^tna  policy  for  $10,000,  and  under  the  applica- 
tion of  this  rule  we  have  $20,000  compound  insurance 
hy  the  Home,  which  is  to  contribute  with  it,  to  pay 
the  loss  of  $18,000. 

Apportionment  and  Contribution  on  Wlieat. 

Compound  insurance  $20,000     Pays  $12,00a 

Specific  insurance  10,000    Pays     6,00a 

Total  insurance  of   $30,000    Pays  $18,000 

The  compound  insurance  of  $20,000  has  paid  $12,- 
000  on  wheat,  which  leaves  $8,000  to  contribute  with 
the  $10,000  specific  insurance  in  the  Continental  to 
pay  the  $17,991  loss  on  corn. 

Apportionment  and  Contribution  on  Corn. 

Compound  insurance   $8,000     Pays    $7,996 

Specific  insurance  10,000     Pays     9,995 

Total  insurance   $18,000     Pays  $17,991 

The  ^tna  and  Continental  each  have  a  policy  for 
$10,000,  and  each  is  entitled  to  the  same  treatment 
so  far  as  the  compound  insurance  is  concerned;  yet 
this  rule  makes  the  ^tna  pay  $6,000  loss,  under  its 
$10,000  on  wheat,  when  the  total  loss  on  wheat  is 
$18,000,  and  the  Continental,  under  its  $10,000  on 
corn,  pays  $9,995  when  the  total  loss  on  corn  is  $17,- 
991,  or  $9.00  less  than  the  loss  on  wheat.  The  ques- 
tion as  to  whether  or  not  the  Continental  would  ap- 
prove of  this  apportionment,  which  makes  it  pay  $3,- 
995  more  loss  than  the  ^tna  pays,  is  not  even  de- 
batable. It  is  a  certainty  that  the  Continental,  or  any 
other  company  placed  in  the  same  position,  would 
repudiate  such  an  unreasonable  and  inconsistent 
adjustment. 

In  the  case  of  Cromie  vs.  Kentucky  &,  Louisville- 
Insurance  Company,  15  B.  Monroe  (Ky.)  432,  in  the 
lower  court,  the  adjustment  was  made  by  making  the- 
compound  Insurance  contribute  from  its  full  amount 
with  the  specific  insurance,  same  as  is  done  when 
applying  the  Chicago  and  Hartford  rules. 

The  attorneys  for  the  insurance  company  stated  its^ 
case  as  follows: 

"The  Kentucky  &  Louisville  Mutual  Insurance  Com- 
pany issued  a  policy  on  Cromie's  paper  mill  for  $5,- 
000.    An  addition  to  the  mill  was  subsequently  built,. 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     SD- 

and  both  buildings  were  insured  together  in  other 
offices  for  $7,000  besides,  making  the  total  sum  in- 
sured $12,000.  Both  buildings  were  damaged  by  fire, 
and  this  company  has  paid  five-twelfths  of  the  loss 
on  the  old  building.  The  question  presented  and  de- 
cided below  was  as  to  the  mode  of  adjusting  the  loss, 
and  by  agreement  the  same  question  is  presented 
here." 

The  attorneys  for  the  assured  argued  that  the  loss 
should  be  adjusted  as  follows: 

*'The  other  insurers  insist  that  the  following  is  the 
true  mode  of  adjustment:  Deduct  the  loss  on  the 
new  buildings  from  the  sum  by  them  insured,  and 
then  compute  the  loss  on  the  old  building  as  if  the 
balance  left  was  the  sum  by  them  insured  on  the  old 
building. 

''And  although  we  decline  to  determine  in  the  pres- 
ent suit  the  proportion  for  which  each  of  the  compa- 
nies is  liable  for  the  loss  on  the  original  building, 
which  alone  w^as  insured  by  the  defendants,  while 
the  other  companies  insured  also  the  addition,  we  are 
of  opinion  that  even  if  the  plaintiff's  recovery  in  this 
case  should  be  restricted  to  the  proportionate  liabil- 
ity of  the  defendants  on  their  policy,  he  has  show^n  a 
right  to  recover  from  them  more  than  five-twelfths 
of  the  amount  of  their  policy,  which  is  as  much  as 
they  have  paid;  and  "which  would  be  the  extent  of 
their  proportional  liability  if  the  original  building 
alone  were  insured  by  all  the  policies,  amounting  in 
the  aggregate  to  $12,000,  without  taking  into  consid- 
eration the  loss  falling  upon  the  other  insurers,  on 
account  of  the  additional  building  covered  by  their 
policies,  and  which  has  suffered  detriment  by  fire  to 
the  amount  of  more  than  $1,100,  which  they  must 
pay.  The  amount  of  this  loss,  at  leasts  should  he 
deducted  from  their  policies  lyefore  their  aggregate 
amount  is  brought  into  the  calculation  by  which  the 
proportional  liaMlity  of  each  is  to  he  ascertained.'" 

This  class  of  claims  is  of  so  much  importance,  re- 
quires our  consideration  so  frequently,  is  the  cause 
of  so  many  contentions  and  so  much  discussion  be- 
tween the  adjusters,  and  costs  the  assureds  and  the 
companies  so  much  money  for  legal  contests,  that  it 
seems  to  me  the  leading  companies  ought  to  agree 
to  use  a  rule  which  is  based  on  a  principle  of  equity — 
which  will  maintain  a  proper  ratio  of  proportion  in 
the  apportionment  of  the  compound  insurance — which 
will  give  the  assured  the  full  benefit  of  his  insurance, 
in  accordance  with  the  contract,  as  it  has  been  con- 
strued by  the  courts,  which  is  susceptible  of  the  most 


.  €0  THE  APPORTIONMENT  OF  LOSS  AND 

general  application,  and  which  is  not  in  conflict  with 
the  pro  rata  contribution  clause  of  the  policy. 

The  rule  which  I  use  and  which  I  am  in  favor  of 
applying  is  not  new.  It  was  recommended  by  Jere- 
miah Griswold  in  his  book  entitled,  "Fire  Underwrit- 
ers' Text-Book,"  which  was  published  in  1872. 

THE   GRISWOLD   RULE. 

''Compound  policies  become  specific  and  cover  the 
several  subjects  under  their  protection  in  the  exact 
proportions  of  the  respective  losses  thereon." 

This  rule  is  the  basis,  and  it  contains  the  princi- 
ple which  is  the  foundation  for  the  rules  necessary 
to  be  used  to  make  the  basis  rule  applicable  to  the 
various  cases. 

While  the  basis  rule  given  by  Mr.  Griswold  seems 
restricted  to  a  single  apportionment,  and  that  a  re- 
apportionment was  not  contemplated,  he  demon- 
strated that  he  recognized  there  were  conditions 
which  might  exist  when  one  or  more  re-apportion- 
ments would  be  necessary. 

In  cases  where  the  compound  insurance  covers 
items  of  property  not  protected  by  any  of  the  specific 
insurance,  the  courts  have  made  a  rule  which  is 
easily  applied,  and  which  avoids  some  of  the  prob- 
lems that  might  be  involved  if  the  Griswold  rule,  as 
given  below,  were  applied.  The  rule  was  made  in 
the  case  of  Cromie  vs.  Kentucky  &  Louisville  Insur- 
ance Company,  15  B.  Monroe  (Ky.)  432.  Mr.  Gris- 
wold recognized  the  rule  applied  in  this  case,  and 
advocated  its  use. 

The  principle  which  is  the  basis  for  the  Griswold 
Rule  has  been  recognized  by  the  courts  in  the  follow- 
ing cases: 

Cromie  vs.  Kentucky  &  Louisville  Mutual  Insurance 
Company,  15  B.  Monroe  (Ky.)  432. 

Mayer  vs.  American  Insurance  Company,  18  Ins. 
Law  Jaurnal,  156. 

Angelrodt  &  Barth  vs.  Delaware  Mutual  Insurance 
Company,  31  Mo.    593. 

Page  Bros.  vs.  Sun  Fire  Office,  25  Ins.  Law  Journal 
865. 

Le  Sure  Lumber  Co.  vs.  Mutual  Fire  Insurance 
Company,  7  N.  W.  Rep.  761. 

In  the  case  of  Mayer  vs.  American  Insurance  Com- 
pany, the  court  uses  the  word  "value"  instead  of  the 
word  "loss,"  and  unless  the  decision  is  carefully  ex- 
amined you  would  be  led  to  believe  that  the  Reading 
Rule  had  been  applied. 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     61 

THE   KINNIE   RULE. 

Since  1885  this  rule  has  been  in  general  use  on  the 
Pacific  Coast,  and  is  known  as  the  Kinnie  Rule.  The 
principle  of  the  rule  is  so  clearly  stated,  and  the 
rules  necessary  to  give  it  full  effect  and  make  it  gen- 
erally applicable  are  so  complete,  I  deem  it  advisable 
to  give  you  a  copy  of  it. 

The   Principle. 

"The  principle  governing  all  apportionments  of 
non-concurrent  policies  is,  that  general  and  specific 
insurance  must  be  regarded  as  co-insurances;  and 
general  insurance  must  float  over  and  contribute  to 
loss  on  all  subjects  under  its  protection,  in  the  pro- 
portions of  the  respective  losses  thereon,  until  the 
assured  is  indemnified,  or  the  policy  exhausted. 

Steps  to  Be  Taken. 

"The  correct  method  of  applying  the  principle  has 
been  formulated  in  the  following: 

"First.  Ascertain  the  non-concurrence  of  the  va- 
rious policies  and  classify  the  various  items  covered 
into  as  many  groups  as  the  non-concurrence  demands, 
whether  of  property,  location  or  ownership. 

"Second.  Ascertain  the  loss  on  such  groups  of 
items  separately. 

"Third.  If  but  a  single  group  is  found  with  a  loss 
upon  it,  the  amounts  of  all  policies  covering  the 
group  contribute  pro  rata. 

"Fourth.  If  more  than  one  group  has  sustained  a 
loss,  and  such  loss  on  one  or  more  groups  be  equal 
to  or  greater  than  the  total  of  general  and  specific 
insurance  thereon,  then  let  the  whole  amounts  of  such 
insurance  apply  to  the  payment  of  loss  on  such 
groups. 

Apportionment. 

"Fifth.  If  more  than  one  group  has  sustained  a 
loss,  and  such  loss  be  less  than  the  totals  of  unex- 
hausted general  and  specific  insurance  thereon,  then 
apportion  the  amount  of  each  policy  covering  on  such 
groups  generally,  to  cover  specifically  on  such  groups 
in  the  same  proportion  that  the  sum  of  the  losses  on 
such  groups  bears  to  the  loss  on  each  individual  group. 
(See  Note.) 

"Note. — When  a  group  is  covered -by  one  or  more 
general  policies,  it  would  be  well  to  see  at  once  if 
an  apportionment  as  above  on  that  group  would 
equal  the  loss,  as,  in  case  it  will  not,  it  will  show 


«2  THH  APPORTIONMENT  OP  LOSS  AND 

without  further  calculation  that  the  whole  amount 
of  loss  on  such  group  must  be  met  by  such  policies 
'  pro  rata,  and  the  remainder  only  apportioned.  In 
fiuch  cases,  carrying  out  Step  6  simply  accomplishes 
by  a  longer  process  what  here  is  indicated. 

Re-Apportionment. 

**Sixth.  If  the  loss  on  any  group  or  groups  is  then 
found  to  be  greater  than  the  sum  of  the  now  specific 
insurance  as  apportioned,  add  sufficient  to  such  spe- 
cific insurances  to  make  up  the  loss  on  the  group, 
taking  the  amount  of  the  deficiency  from  the  now 
specific  insurances  of  the  heretofore  general  amounts 
previously  covering  the  new  deficient  groups,  which 
cover  on  groups  having  an  excess  of  insurance,  in 
the  proportion  that  their  sums  bear  to  the  individual 
amounts. 

"Note. — Very  rarely  are  new  deficiencies  created  by 
the  re-apportionment,  but  if  so,  simply  repeat  Step  6. 

"Seventh.  Cause^  the  -amounts  of  all  the  now  spe- 
cific insurances  to  sevetally  contribute  pro  rata  to 
pay  the  partial  losses,  and  it  will  be  found  that  the 
whole  Scheme  has  resulted  in  the  claimant  being 
tully  indemnified  in  accordance  with  the  various  con- 
tracts and  on  a  basis  which  preserves  the  equities 
between  the  companies  throughout. 

"To  simplify  matters  the  following  formula  is 
given  in  order  that  time  may  be  saved,  when  no 
analysis  of  the  principle  is  desired  or  argument 
needed. 

Apportionment. 

"General  policies  covering  on  more  than  one  group 
should  be  divided  into  specific  sums  as  follows: 

Formula.     (See  Step  5.) 

"1— As the  sum  of  the  losses  on  such  groups, 

"2 — Is  to the  individual  loss  on  each  of  them, 

«'3_So  is the  whole  amount  of  policy  so  cover- 
ing, 

"4 — To the   specific   amount   to   apply    on   each 

group. 

Method  of  Computation. 

"Divide  No.  3  by  No.  1  to  get  per  cent.,  and  then 
multiply  by  No.  2  (seriatim)  to  get  No.  4. 

Re-Apportionment. 

"Should  there  not  be  enough  insurance  on  a  group 
or   groups   to   pay    the    loss,    and    some   groups   have 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     63 

more  than  enough,  a  second  re-apportionment  is  nec- 
essary, though  ordinarily  but  one  is  needed. 

Formula.     (See  Step  6.) 

"1 — As the  sum  of  specific  insurance  (with  sur- 
plus), 

"2 — Is  to the   individual   amount    of    each    of 

them, 

**3 — So  is the  sum  to  be  provided, 

<*4 — To the  amount  each  group  will  contribute. 

Method  of  Computation. 

"Divide  No.  3  by  No.  1  to  get  per  cent,  and  then 
multiply  by  No.  2  (seriatim)  to  get  No.  4. 

"Repeat  Step  6  when  necessary. 

"The  deficient  groups  can  now  be  fortified  by  the 
exact  amounts  needed  to  pay  the  losses,  and  the  prob- 
lem is  at  once  narrowed  down  to  an  ordinary  mathe- 
matical one. 

Contribution. 

"All  groups  have  now  specific  insurance  on  them, 
and  will  pay  the  losses  pro  rata,  whereby  absolute 
indemnity  to  the  assured,  and  equitable  contributions 
by  the  companies  are  attained  on  the  proper  and  un- 
changing principle  of  loss  to  loss." 

It  is  first  necessary  to  separate  the  property  de- 
stroyed or  damaged  into  as  many  groups  as  the  non- 
concurrency  of  the  various  policies  demands.  The 
non-concurrency  may  be  because  of  different  classes 
of  property  being  covered  by  the  insurance,  or  the 
property  may  be  in  different  locations,  or  there  may 
be  different  interests.  It  then  becomes  necessary  to 
ascertain  the  amount  of  loss  on  each  item  of  property 
destroyed  or  damaged  which  is  now  the  subject  of 
specific  insurance. 

I  will  make  the  apportionment  and  contribution 
in  a  case  where  the  compound  insurance  covers  items 
not  protected  by  the  specific  insurance.  In  the  first 
statement  I  will  make  the  compound  insurance  spe- 
cific on  the  basis  of  the  loss.  I  will  then  make  the 
apportionment  as  provided  by  the  rule  made  by  the 
court  in  the  Cromie  case. 

Statement. 

Continental — On  Corn   $2,500;  loss  on  corn,  $4,000 

^tna — On  Com  and  Oats..  7,500;  loss  on  oats,    1,000 
If  we  make  the  compound   policy   issued   by  the 
^tna  specific  on  the  basis  of  loss,  we  have  four-fifths 
covering  on  corn  and  one-fifth  covering  on  oats. 


64  THE  APPORTIONMENT  OP  DOSS  AND 

Apportionment  and  Contribution  on  Corn. 

Continental  insures $2,500     Pays  $1,176.47 

^tna  insures    G,000     Pays    2,823.53 

Total  loss  paid    $4,000.00 

Apportionment  and   Contribution   on  Oats. 
^tna  insures  $1,500     Pays  $1,000.00 

Total  loss  paid $1,000.00 

^tna  pays  on  Corn $2,823.53 

^tna  pays  on  Oats $1,000.00 

Total  loss  paid. $3,823.53 

Continental  pays $1,176.47 

^tna  pays   $3,823.53 


Total  loss  paid  $5,000.00 

In  the  case  of  Cromie  vs.  The  Kentucky  &  Louis- 
ville Mutual  Insurance  Company,  15  B.  Monroe  (Ky.), 
432,  the  court  made  a  rule  for  this  class  of  cases,  and 
it  has  been  and  is  being  generally  used. 


THE  CROIVIIE   RULE. 

When  the  compound  insurance  covers  property 
which  is  not  covered  by  the  specific  insurance,  a  por- 
tion of  the  compound  insurance,  equal  to  the  amount 
of  loss  on  this  property,  must  be  set  aside  to  pay  this 
loss.  .The  remainder  of  the  compound  insurance  con- 
tributes with  the  specific  to  pay  the  loss  on  the  prop- 
erty covered  by  the  specific  insurance.  If  the  loss  on 
the  property  covered  only  by  the  compound  insurance 
is  equal  to  or  greater  than  the  compound  insurance, 
this  insurance  will  be  exhausted  and  there  will  be 
nothing  to  contribute  from,  to  help  out  the  specific 
insurance. 

If  we  apply  this  rule  to  this  case  we  get  different 
results,  but  only  to  the  amounts  the  companies  pay. 
The  assured  receives  the  full  loss.  The  Cromie  Rule, 
applied,  results  as  follows: 

Apportionment  and   Contribution   on   Oats. 

^tna  insures $1,000     Pays  $1,000.00 


Total  loss  paid  $1,000.00 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     65 

Appoptionmerrt  and  Contribution  on  Corn. 

Continental  insures  $2,500     Pays  $1,111.11 

Aetna  insures 6,500    Pays   2,888.89 

Total  loss  paid $4,000.00 

^tna  pays  on  Oats $1,000.00 

^tna  pays  on  Corn 2,888.89 

Total  loss  paid $3,888.89 

Continental  pays • $1,111.11 

^tna  pays   3,888.89 

Total  loss  paid $5,000.00 

The  application  of  the  Cromie  Rule  makes  the 
^tna  pay  $65.36  more,  and  the  Continental  pays 
$65.36  less  than  was  the  result  of  the  application  of 
the  first  rule. 

This  rule,  which  I  call  the  Cromie  Rule,  and  which 
is  the  last  one  applied,  is  so  generally  used  and  has 
been  approved  by  the  courts  in  so  many  cases,  it  is 
safe  to  insist  on  its  application. 

This  Cromie  case  is  of  so  much  importance  when 
considering  the  apportionment  of  compound  insur- 
ance, I  will  give  you  a  copy  of  the  full  decision.  You 
will  readily  understand  when  reading  the  case  that 
the  policies  issued  when  the  one  involved  in  this  suit 
was,  did  not  contain  the  pro  rata  contribution  clause. 

THE    CROMIE    CASE. 
Statement. 

"1.  The  insured,  where  there  are  several  policies 
covering  the  same  property,  is  entitled  to  but  one 
indemnity,  which  he  may  recover  from  anyone,  and 
those  who  pay  must  seek  contribution  from  other  in- 
surance. (1  Phill.  on  Ins.,  ed.  of  1823,  p.  326:  2  lb. 
224,  387,  496.) 

"2.  If  there  be  a  double  insurance,  and  part  be 
recovered  on  one  policy,  the  remaining  loss  may  be 
recovered  on  another. 

"The  facts  of  the  case  are  stated  in  the  opinion  of 
the  court. 

Statement  of  Attorneys  for  Appellee. 

"The  Kentucky  &  Louisville  Mutual  Insurance 
Company  issued  a  policy  on  Cromie's  paper  mill  for 
$5,000.  An  addition  to  the  mill  was  subsequently 
built,  and  both  buildings  were  insured  together  in 

5 


66  THE  APPORTIONMENT  OF  LOSS  AND 

other  offices  for  $7,000  besides,  making  the  total  sum 
Insured  $12,000.  Both  buildings  were  damaged  by- 
fire,  and  this  company  has  paid  five-twelfths  of  the 
loss  on  the  old  building.  The  question  presented  and 
decided  below  was  as  to  the  mode  of  adjusting  the 
loss,  and  by  agreement  the  same  question  is  presented 
here.     (See  Record  8.) 

"If  the  new  building  alone  had  burned,  this  insur- 
ance company  would  not  have  been  bound  for  any 
part  of  the  loss,  because  that  building  was  not  em- 
braced in  her  policy.  If  the  old  building  alone  had 
burned  she  would  have  been  liable  for  only  five- 
twelfths  of  the  loss,  not  exceeding  the  sum  by  her 
insured.  Now  when  both  buildings  burn,  if  a  rule  of 
adjustment  is  fixed  whereby  this  company  pays  more 
than  if  the  old  building  alone  had  burned,  to  that 
extent  she  is  made  to  pay  for  the  loss  on  the  new 
building  which  is  not  embraced  in  her  policy. 

"The  other  underwriters  can  not  justly  complain 
of  the  mode  of  adjustment  proposed  above.  As  to 
them,  the  risk  is  a  unit.  Their  policies  embrace  both 
buildings  as  a  whole,  and  they  have  no  more  right 
to  apportion  their  risk  on  the  constituent  parts  of 
the  building  insured  than  upon  its  rooms  or  stories. 
Let  the  loss  fall  upon  what  part  or  parcel  it  may, 
they  must  make  good  their  contract  with  Cromie. 
True,  their  pro  rata  might  be  larger,  if  the  other 
alone  burned,  for  in  the  first  case  the  contribution 
would  be  by  sevenths,  and  in  the  last  by  twelfths; 
but  this  results  from  their  contract,  and  truly  this 
insurance  company  is  not  an  underwriter  for  them. 

Statement   of   Attorneys   for   Appellant. 

*'The  other  insurers  insist  that  the  following  is  the 
true  mode  of  adjustment:  Deduct  the  loss  on  the 
new  building  from  the  sum  by  them  insured,  and  then 
compute  the  loss  on  the  old  building  as  if  the  bal- 
ance left  was  the  sum  by  them  insured  on  the  old 
iDuilding.  The  objection  to  this  mode  is,  as  has  been 
shown,  that  the  sum  to  be  paid  by  this  insurance 
•company  is  made  to  depend  not  only  on  the  burning 
of  the  new  building,  but  on  the  extent  of  that  loss, 
although  her  policy  does  not  cover  the  new  building. 

"Either  mode  is  just  to  Gromie,  for  by  either  his 
loss  is  made  good  to  the  extent  of  the  sum  insured. 
The  struggle  is  to  make  one  insurer  pay  a  part  of  the 
loss  due  from  another,  by  such  an  adjustment  as  will 
compel  him  to  respond  to  a  loss  where  he  has  not 
assumed  a  risk. 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     67 

"The  case  of  Liscom  vs.  Boston  Mutual  Fire  Insur- 
ance Company,  9  Met.  205,  seems  to  favor  our  posi- 
tion, and  Howard  Insurance  Company  vs.  Scribner, 
5  Hill,  208,  is  claimed  to  be  even  stronger  for 
Cromie. 

"In  this  last  case  there  was  an  insurance  in  the 
Aetna  Company  on  fixtures  and  stock  togehter  for  $5,- 
000,  and  another  in  the  Howard  Company  for  $1,000  on 
fixtures  and  $3,000  on  stock.  The  Howard  policy  con- 
tained the  usual  clause  of  proportionate  liability  in 
the  case  of  other  insurance.  Held,  That  the  assured 
was  entitled  to  recover  the  whole  amount  of  the  lat- 
ter policy  without  reference  to  the  first.  This  deci- 
sion is  pointedly  condemned  by  Phillips,  1  Treat,  on 
Law  of  Ins.  (3d  ed.)  204,  and  seems  to  the  writer  to 
be  a  plain  violation  of  common  sense.  If  the  fixtures 
alone  had  been  destroyed,  the  Howard  Insurance 
Company  would  have  been  liable  for  one-sixth  only, 
and  if  the  stock  alone  had  been  destroyed,  she  would 
have  been  liable  for  three-eighths  only.  Now,  if 
these  sums  do  not  make  up  that  for  which  she  is 
liable  when  fixtures  and  stock  are  both  destroyed, 
the  whole  is  greater  than  its  parts  taken  together. 
As  to  any  hardships  thus  resulting  to  the  assured, 
Phillips  justly  remarks  that  it  is  to  be  ascribed  to 
his  own  folly,  and  he  must  bear  the  inconvenience; 
for,  having  agreed  to  a  stipulation  in  the  policy 
against  double  insurance,  introduced  for  the  benefit 
of  both  parties  to  that  policy,  it  would  be  a  violation 
of  all  principle  that  he  should  be  permitted  to  defeat 
its  operation  in  favor  of  the  insurer,  by  the  form  of 
his  contract  with  a  third  party,     (lb.) 

"Without  being  apprised,  so  far  as  we  know,  of 
the  decision  in  this  case.  Judge  Pirtle,  on  the  author- 
ity of  Howard  Insurance  Company  vs.  Scribner,  re- 
cently decided  against  our  view  of  the  law  in  this 
case;  but  he  gave  no  reason,  and  it  is  very  certain 
that  this  mere  opinion  is  not  entitled  to  more  weight 
than  Judge  Bullock's  and  Phillips'.  Phillips  was  not 
cited  to  him. 

"We  ask  an  affirmance. 

Decision. 

"Chief  Justice  Marshall  delivered  the  opinion  of 
the  Court:  This  petition  alleges  that  on  the  26th 
day  of  May,  1851,  Cromie,  the  plaintiff,  took  insur- 
ance from  the  defendants  in  the  sum  of  $5,000,  to 
continue  six  years  upon  his  building,  known  as  the 
Louisville    Paper   Mill,    after    having    previously    in- 


68  THE  APPORTIONMENT  OF  LOSS  AND 

sured  $2,000  on  the  same  building  in  the  Howard 
Insurance  Company  of  New  York,  and  $1,000  in  the 
uEtna  Insurance  Company  of  Hartford,  Conn.,  as 
shown  by  entries  made  by  defendants  before  their 
policy  was  delivered.  That  afterwards,  in  the  year 
1852,  he  erected  an  addition  to  said  building,  esti- 
mated at  $4,000,  and  being  desirous  to  increase  the 
insurance  to  about  $12,000  on  the  old  building  and 
the  addition,  he  obtained  insurance  from  the  Protec- 
tion Insurance  Company  to  the  amount  of  $2,000, 
on  both  the  old  and  new  building,  and  from  the  Co- 
lumbia Insurance  Company  of  Charleston  for  $2,000, 
covering  the  old  and  new  building,  and  the  Howard 
and  -^tna  companies  extended  their  policies  so  as  to 
cover  the  old  as  well  as  the  new  building.  Of  all 
which,  the  defendants,  as  he  avers,  were  duly  in- 
formed and  consented  thereto,  and  agreed  that  their 
policy  should  not  be  vitiated  thereby,  as  appears  by 
entries  and  indorsement  on  the  same,  made  by  them. 
And  that  the  entries  as  to  the  insurances  by  the  Pro- 
tection and  the  Commercial  Insurance  Companies 
were  made  by  defendants  in  November  or  December, 
1852,  after  they  had  notice  of  the  insurance  in  said 
companies,  as  above.  The  plaintiff  further  alleges 
that  on  December  26,  1862,  the  building,  insured  by 
defendants,  and  also  said  addition,  were  burned;  that 
he  sustained  loss  on  the  former  of  at  least  $8,377.63, 
and  on  the  latter  of  at  least  $1,122.37;  that  he  noti- 
fied said  defendants  of  the  loss  on  December  28,  1852, 
and  that  they  did  not  determine  to  rebuild — under 
their  privilege  of  doing  so — nor  paid  said  $5,000,  but 
have  only  paid  $3,490.67,  and  refuse  to  pay  more. 
Wherefore,  he  asks  for  judgment  for  such  part  of 
said  $5,000  as  he  may  be  entitled  to,  etc.,  and  other 
proper  relief. 

"(1.)  The  policy  executed  by  the  defendants  is  re- 
ferred to  as  filed  with  the  petition,  and  makes  a  part 
of  the  record  before  us.  It  accords  with  the  state- 
ment of  it  in  the  petition,  except  that  the  reference  to 
the  other  policies  does  not  state  that  they  include  the 
addition,  or  anything  not  covered  by  the  policy  of  the 
defendant.  But  the  petition  states  that  the  defend- 
ants were  duly  notified  of  the  facts  stated  with  respect 
to  the  other  policies,  and  that  they  themselves  made 
entry  thereof  upon  their  own  policies,  and  it  may  be 
assumed  that  they  were  notified  that  the  other  poli- 
cies covered  the  addition  as  well  as  the  original 
building.  The  policy  executed  by  the  defendants 
contains,  however,  no  stipulation  for  the  apportion- 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     69 

ment  of  loss  with  the  other  insurers,  or  for  any 
abatement  on  account  of  prior  or  other  policies.  And, 
as  it  seems  to  be  the  rule  that  where  there  is  no 
such  stipulation,  the  insured,  though  entitled  to  but 
one  satisfaction,  may  recover  judgment  against  either 
set  of  insurers  to  the  extent  of  the  loss  so  far  as  cov- 
ered by  their  policy,  leaving  them  to  claim  contribu- 
tion from  the  other  insurers,  it  is  immaterial  to  the 
result  of  the  present  action,  and  is  only  material  as 
between  the  different  insurers,  or  in  a  subsequent 
action  against  others,  whether  all  the  policies  cover 
precisely  the  same  property,  or  if  they  do  not,  what 
ratable  portion  of  loss  should  follow  each  in  ease  of 
the  destruction  of  that  property  which  is  insured 
by  all. 

"(2.)  The  rule  above  stated  is  laid  down  by  Phil- 
lips in  his  work  on  insurance  (Vol.  1,  p.  326,  od.  of 
1823)  as  follows:  'But  if  the  subsequent  policy  con- 
tain no  provision  in  respect  to  prior  insurance,  the 
amount  of  insurable  interest  for  such  policy  will  be 
the  same  as  for  the  first,  for  the  insured  may  insure 
again  and  again,  the  same  property  if  he  will  pay 
the  premiums.  But  he  can  recover  only  one  indem- 
nity; this  he  may  recover  against  the  first  or  sub- 
sequent underwriters,  and  those  who  pay  the  loss 
may  demand  a  proportionable  contribution  from  other 
insurers.'  The  doctrine  is  again  referred  to  in  Vol. 
2,  p.  224;  and  pp.  387  and  496.  It  is  explicity  stated 
that  in  case  of  double  insurance  the  assured  may 
recover,  against'  any  one  set  of  underwriters,  the 
whole  amount  insured  by  them,  not  exceeding  that  of 
the  loss,  and  that  either  one  who  pays  more  than 
his  proportion  of  the  loss  may  recover  a  ratable  re- 
imbursement from  the  others.  And  on  the  page  last 
cited,  it  is  said  again  that  in  case  of  double  insur- 
ance the  assured  may  recover  against  either  set  of 
underwriters  the  whole  amount  insured  by  them. 
But  if  a  part  has  been  recovered  against  one  set, 
only  the  excess  can  be  recovered  against  the  others. 
And  in  Ellis  on  Insurance,  side  pp.  13-14,  as  pub- 
lished in  Vol.  4  of  the  Law  Library,  it  is  said  that, 
'even  without  a  special  condition  of  the  policy,  a  party 
insured,  effecting  a  double  insurance,  can  only  re- 
cover the  real  amount  of  his  loss,  and  if  he  sues  one 
insurer  for  the  whole,  the  insurer  may  compel  the 
others  to  contribute  their  proportional  parts;'  evi- 
dently implying  that  he  may  recover  the  whole  from 
the  one  whom  he  sues. 

"Under  this  rule,  as  laid  down  by  these  authors, 


70  THE  APPORTIONMENT  OF  LOSS  AND 

for  which  reference  is  made  to  various  adjudged 
cases  cited  by  them,  and  which  is  entirely  analog- 
ous to  the  principle  commonly  applied  at  law  to 
cases  in  which  several  persons  are  bound  in  dif- 
ferent instruments  for  the  performance  of  the  same 
thing,  we  are  of  opinion  that  the  plaintiff  in  this  case 
has  the  right  to  a  judgment  against  the  defendants 
for  the  whole  amount  of  loss  covered  by  their  policy, 
leaving  them  to  settle  with  the  other  companies  the 
proportions  of  the  loss  which  ought  to  be  borne  by 
each,  unless  in  the  present  case  the  plaintiff  is  will- 
ing and  intends  to  limit  his  recovery  to  the  sum 
for  which  the  defendants,  as  between  themselves 
and  the  other  companies,  would  ultimately  be  liable 
as  their  proportion  of  the  loss;  of  which  there  is 
certainly  no  decisive  or  sufficient  indication  in  the 
petition.  It  follows,  from  the  view  we  have  taken  of 
the  rights  of  the  plaintiff  in  this  action,  that  the 
petition  shows  a  right  of  action  and  of  recovery  for 
the  difference  between  the  sum  paid  by  the  de- 
fendants and  the  entire  amount  of  five  thousand  dol- 
lars, which  they  insured  on  the  original  building. 
And,  although  we  decline  to  determine  in  the  pres- 
ent suit  the  proportions  for  which  each  of  the  com- 
panies is  liable  for  the  loss  on  the  original  building, 
which  alone  was  insured  by  the  defendants, 
while  the  other  companies  insured  also  the  addition, 
we  are  of  opinion  that  even  if  the  plaintiff's  recov- 
ery in  this  case  should  be  restricted  to  the  propor- 
tionate liability  of  the  defendants  on  their  policy, 
he  has  shown  a  right  to  recover  from  them  more 
than  five-twelfths  of  the  amount  of  their  policy, 
which  is  as  much  as  they  have  paid;  and  which 
would  be  the  extent  of  the  proportional  liability  if 
the  original  building  alone  were  insured  by  all  the 
policies,  amounting  in  the  aggregate  to  $12,000,  with- 
out taking  into  consideration  the  loss  falling  upon 
the  other  insurers,  on  account  of  the  additional  build- 
ing covered  by  their  policies,  and  which  has  suffered 
detriment  by  fire  to  the  amount  of  more  than  $1,100, 
which  they  must  pay.  The  amount  of  this  loss,  at 
least,  should  be  deducted  from  their  policies  before 
their  aggregate  amount  is  brought  into  the  calcula- 
tion by  which  the  proportional  liability  of  each  is  to 
be  ascertained.  Whether  there  should  not  be  a 
greater  deduction  on  account  of  their  xjontinuing 
liability  for  loss  which  may  yet  occur  on  the  addi- 
tional building  covered  by  their  policies,  we  need 
not,  and  do  not  decide,  nor  indeed  have  we  the  neces- 
sary data  for  such  a  decision. 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     71 

"But  as  in  any  view  of  the  case,  the  petition  shows 
a  right  of  action  and  of  recovery  to  the  extent,  it 
should  have  been  adjudged  good  on  demurrer,  and 
the  court  erred  in  sustaining  the  demurrer  and  ren- 
dering judgment  against  the  plaintiff. 

"Wherefore,  the  judgment  is  reversed  and  the 
cause  remanded,  with  directions  to  overrule  the  de- 
murrer, and  for  further  proceedings." 

I  will  now  take  up  the  case  you  have  submitted,, 
and  apportion  the  compound  insurance  according  to 
the  Griswold  Rule. 

Statement. 

Continental— On  wheat,  $2,500;  loss,  $3,000. 

Continental— On  corn,  $3,000;  loss,  $4,000. 

Continental— On  oats,  $2,000;   loss,  $8,000. 

Aetna — On  grain,  $5,000. 

Home— On  grain,  $6,000. 

The  Aetna  and  Home  policies,  being  the  compound 
insurance,  are  to  be  made  specific  on  the  basis  of  the 
losses.  Three-fifteenths  of  each  covers  on  wheat; 
four-fifteenths  of  each  covers  on  corn,  and  eight-fif- 
teenths of  each  covers  on  oats. 

Apportionment  on  Wheat. 

Continental  insures    $2,500 

Aetna  insures    1,000 

Home  insures 1,200 

Total  insurance   $4,700 

Loss    $3,000 

Apportionment  on  Corn. 

Continental  insures  $3,000 

Aetna  insures   1,333 

Home  insures   1,600 

Total  insurance    $5,933 

Loss    $4,000 

Apportionment  on  Oats. 

Continental  insures   $2,000 

Aetna  insures   2,667 

Home  insures   3,200 

Total  insurance $7,867 

Loss    $8,000 

Under  this  apportionment  on  oats  we  get  an  in- 
surance of  $7,867,  with  a  loss  on  oats  of  $8,000.    This 


72  THE  APPORTIONMENT  OF  LOSS  AND 

apportionment  will  pay  the  losses  in  full  on  wheat 
and  corn,  and  give  the  companies  a  salvage  of  $3,633, 
and  the  assured  loses  $133  on  the  oats.  This  neces- 
sitates a  re-apportionment.  The  insurance  exceeds 
the  loss  by  $3,500,  and  therefore  the  loss  must  be 
paid  in  full. 

It  does  not  very  often  happen  in  the  regular  work 
that  we  have  to  resort  to  a  re-apportionment. 

We  must  now  take  from  the  former  compound, 
but  now  specific  insurance,  covering  wheat  and  corn, 
$133,  and  add  it  to  the  former  compound,  but  now 
specific,  insurance  on  oats. 

From  Apportionment  on  Wheat. 

Aetna  insures » $1,000 

Home  insures 1,200 

Total    .$2,200     $2,200 

From  Apportionment  on  Corn. 

Aetna  insures $1,333 

Home  insures  1,600 

Total    ...$2,933     $2,933 

Total  $5,133 

The  total  former  compound,  but  now  specific,  in- 
surance on  wheat  and  com  is  $5,133. 

2,220/5,133  of  $133,  or  $57  must  be  taken  from  the 
former  compound,  but  now  specific,  insurance  on 
wheat,  and  2,933/5,133  of  $133,  or  $76,  has  to  be  taken 
from  the  same  class  of  insurance  on  com. 

The  $57  which  we  take  from  the  Aetna  and  Home 
insurances  on  wheat  and  add  to  the  same  companies' 
insurances  on  oats  is  1,000/2,200  of  $57,  or  $25.91,  from 
the  Aetna,  and  1,200/2,200  of  $57,  or  $31.09,  from  the 
Home. 

1,333/2,933  of  the  $76  on  com,  or  $34.54,  of  the 
Aetna  insurance,  and  1,600/2,933  of  the  $76,  or  $41.46, 
of  the  Home  insurance  on  corn  is  to  be  taken  from 
the  insurance  of  these  companies  and  added  to  the 
same  companies'  insurance  on  oats. 

Another  way  to  ascertain  the  amount  of  the  former 
compound,  but  now  specific,  insurance  to  be  taken 
from  wheat  and  corn  to  make  good  the  deficiency  of 
insurance  on  oats,  is  to  take  1,000/5,133- of  $133,  or 
$25.91,  from  the  Aetna  insurance  on  wheat;  1,200/- 
5,133  of  $133,  or  $31.09,  of  the  Home  insurance  on 
wheat;    1,333/5,133   of  $133,  or  $34.54,  of  the  Aetna 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     73 

insurance  on  corn,  and  1,600/5,133  of  $133,  or  $41.46, 
of  the  Home  insurance  on  corn,  making  a  total  of 
$133. 

Re-Apportionment  and  Contribution  on  Wheat. 

Continental  Insures   $2,500.00    Pays  $1,615.34 

Aetna  insures  974.09     Pays      629.39 

Home  insures  1,168.91     Pays      755.27 


Total  insurance  $4,643.00    Pays  $3,000.00 

Re-Apportionment  and   Contribution   on   Corn. 

Continental  insures    $3,000.00     Pays  $2,048.84 

Aetna  insures  1,298.46     Pays      886.76 

Home  insures  1,558.54     Pays    1,064.40 


Total  insurance   .... $5,857.00     Pays  $4,000.00 

Re-Apportionment  and   Contribution   on   Oats. 

Continental  insures    $2,000.00     Pays  $2,000.00 

Aetna  insures 2,727.45     Pays    2,727.45 

Home  insures  3,272.55     Pays    3,272.55 

Total  insurance   $8,000.00     Pays  $8,000.00 

Continental  pays  on  wheat $1,615.34 

Continental  pays  on  corn 2,048.84 

Continental  pays  on  oats 2,000.00 

Total  loss  paid $5,664.18 

Aetna  pays  on  wheat $629.39 

Aetna  pays  on  corn 886.76 

Aetna  pays  on  oats 2,727.45 

Total  loss  paid    $4,243.60 

Home  pays  on  wheat $755.27 

Home  pays  on  corn 1,064.40 

Home  pays  on  oats 3,272.55 

Total  loss  paid  $5,092.22 

Continental  pays  $5,664.18 

Aetna  pays    4,243.60 

Home  pays  5,092.22 

Total  loss  paid $15,000.00 

After  an  apportionment  has  been  made,  the  amount 
of  the  former  compound,  but  now  specific,  insurances 
to  be  taken  from  any  item  for  a  re-apportionment, 
must  not  reduce  the  total  insurance  on  the  item  to 


74  THE  APPORTIONMENT  OF  LOSS  AND 


less  than  the  loss.  If  it  should  reduce  the  insurance 
below  the  loss,  then  only  the  excess  of  insurance 
above  the  loss  should  be  taken,  and  the  remainder 
should  be  taken  from  the  other  item,  if  there  is  any. 

AVERAGE  CLAUSE— DISTRIBUTION    FORM. 

It  is  understood  and  agreed  that  the  amount  in- 
sured by  this  policy  shall  attach,  in  each  of  the  above 
named  premises,  in  that  proportion  of  the  amount 
hereby  insured,  that  the  value  of  property  covered  by 
this  policy,  contained  in  each  of  said  places,  shall 
bear  to  the  value  of  such  property  contained  in  all 
of  the  above  named  premises. 

The  effect  of  this  clause  is  to  make  the  insurance 
specific  in  the  different  locations,  or  on  the  different 
classes  of  property  covered  by  the  insurance.  To 
apply  this  clause  produces  the  same  results  as  it 
would  if  we  applied  the  Reading  Rule.  As  this  clause 
and  the  rule  have  been  fully  explained  herein  by 
example,  it  is  unnecessary  to  repeat  it  here.  When 
this  clause  is  applied  the  amount  of  insurance  it  fixes 
on  each  class  of  property,  or  in  each  location,  is  the 
specific  insurance,  and  each  amount  is  the  maximum 
contributive  liability. 

Under  this  clause,  if  we  have  two  buildings  valued 
at  $16,000,  one  worth  $10,000,  and  the  other  $6,000, 
with  $12,000  insurance,  we  readily  understand  that 
this  $12,000  insurance  becomes  specific  on  each  build- 
ing as  the  value  of  each  building  bears  to  the  value 
of  both  buildings.  Six-sixteenths,  or  $4,500,  covers 
on  one  building,  and  ten-sixteenths,  or  $7,500,  covers 
on  the  other  building.  These  two  items  are  specific 
insurance,  the  same  as  if  these  figures  had  been  set 
forth  in  the  policy  in  the  place  of  using  the  Average 
Clause. 

LIMITATION    CLAUSES. 

In  every  insurance  policy  there  are  two  limits  of 
liability.  One  is  the  contributive  liabilit3%  and  the 
other  is  the  loss  liability.  The  contributive  liability 
is  the  maximum  amount  which  a  policy  can  be  called 
on  to  contribute  from  to  pay  a  loss.  The  loss  liabil- 
ity is  the  amount  the  company  can  be  compelled  un- 
der the  conditions  of  the  policy  to  pay.  The  contrib- 
utive liability  and  the  maximum  loss  liability  are  not 
always  the  same.  The  contributive  liability  is  the 
limit  of  insurance  named  in  the  policy,  providing 
there  is  onlj^  one  item  insured  and  no  average  clause 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     75 


— distribution  form — on  the  policy.  If  there  are  two 
or  more  items  insured  specifically,  then  the  amount 
insured  on  each  is  the  contributive  liability.  The 
loss  liability  is  limited  in  every  policy  to  the  actual 
amount  of  loss,  but  not  exceeding  its  contributive 
liability,  and  in  some  policies  by  the  use  of  limita- 
tion clauses  it  is  limited  to  not  exceeding  a  stated 
amount,  or  a  certain  percentage  of  the  sound  value 
or  loss. 

The  three-fourths  value,  three-fourths  loss,  average 
and  co-insurance  clauses  are  a  special  contract  made 
between  the  assured  and  the  company  having  the 
limitation  clause  on  its  policy.  Under  the  form  of 
policies  now  being  used  no  company  is  entitled  to 
the  benefit  of  a  clause  unless  it  is  on  its  policy.  These 
limitation  clauses  are  the  sources  of  considerable 
trouble  when  there  is  other  insurance  without  the 
same  kind  of  clause.  When  there  is  no  additional 
insurance,  or  if  there  is  other  insurance  and  it  is 
concurrent,  the  clause  can  be  easily  applied  and  the 
results  intended  to  be  secured  by  its  application  can 
be  quickly  determined. 

It  is  first  absolutely  necessary  to  determine  what 
the  effect  of  the  clause  on  the  policy  is.  Whether  it 
limits  the  contributive  liability,  by  fixing  the  amount 
of  insurance  on  each  item,  or  whether  it  reduces  the 
loss  liability  to  an  amount  less  than  the  contributive 
liability,  and  makes  no  change  in  the  amount  of  the 
contributive  liability. 

There  are  several  kinds  of  limitation  clauses,  and 
they  may  be  divided  into  three  classes. 

Class^Number  One. 

The  first  is  where  the  clause  fixes  a  maximum 
limit  of  loss  liability,  which  is  the  basis  for  contri- 
bution to  be  made  by  all  the  insurance,  as  provided 
by  the  pro  rata  contribution  clause.  In  these  cases 
the  loss  liability  is  determined  first,  and  the  contri- 
bution is  made  afterwards. 

Class  Number  Two. 

The  second  is  where  the  basis  of  contribution  is 
the  total  loss,  and  the  liability  of  each  company  is 
fixed  in  its  policy.  The  contribution  is  made  first, 
and  the  limitation  clause  applied  afterwards,  in  these 
cases. 

Class  Number  Three. 

The  third  is  where  the  liability  of  each  company  is 
fixed  by  its  contract,  regardless  of  the  pro  rata  con- 
tribution clause,  and  the  other  insurance. 


76  THE  APPORTIONMENT  OF  LOSS  AND 


I  will  give  an  example  of  an  adjustment  of  a  claim 
under  each  one  of  the  various  limitation  clauses.  I 
will  first  take  a  case  where  the  policies  are  concur- 
rent, and  then  take  the  same  case  and  make  some  of 
the  policies  non-concurrent,  as  we  frequently  find 
them,  and  make  the  apportionment  and  contribution. 

Class  Number  One. 

This  class  fixes  a  maximum  limit  of  loss  liability 
which  is  the  basis  for  contribution,  to  be  made  by 
all  the  insurance  as  provided  by  the  pro  rata  contri- 
bution clause. 

The  three-fourths  value,  three-fourths  loss,  and  all 
limitation  clauses  which  fix  a  basis  of  contribution 
and  make  the  amount  which  is  the  basis  for  contri- 
bution the  maximum  liability  of  all  the  companies, 
are  of  this  class. 

THREE-FOURTHS  VALUE  CLAUSE. 

It  is  a  part  of  the  consideration  of  this  policy, 
and  the  basis  upon  which  the  rate  of  premium  is 
fixed,  that  in  the  event  of  loss  this  company  shall 
not  be  liable  for  an  amount  greater  than  three-fourths 
of  the  actual  cash  value  of  the  property  covered  by 
this  policy  at  the  time  of  such  loss,  and  in  case  of 
other  insurance,  whether  policies  are  concurrent  or 
not,  then  for  only  its  pro  rata  proportion  of  such 
three-fourths  value. 

Statement. 

Continental,   on  building    $5,000.00 

Aetna,  on  building  5,000.00 

Each  of  the  policies  had  on  it  the  three-fourths 
value  clause.  The  loss  was  $9,000.  The  value  of  the 
building  was  $11,000.  Three-fourths  of  $11,000  is 
$8,250,  which  is  the  basis  of  contribution,  and  the 
maximum  limit  of  liability  of  all  the  companies. 

Apportionmen't  and  Contribution. 

Continental  insures   $5,000     Pays  $4,125 

Aetna  insures  5,000     Pays    4,125 


Total  loss  paid   $8,250 

By  the  application  of  this  clause,  the  assured  does 
not  receive  his  full  loss,  though  his  insurance  was 
$1,000  more  than  the  total  loss.  He  does,  however, 
receive  all  he  should,  under  the  contracts  he  made. 
There  is  in  this  case  no  arbitrary  apportionment. 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     77 

Statement. 

Continental,  on  building   $5,000 

Aetna,  on  building   5,000 

The  loss  is  $9,000.  Three-fourths  value  clause  on 
Continental  policy. 

The  value  of  the  building  was  $11,000.  Three- 
fourths  of  $11,000  is  $8,250.  The  difference  between 
$9,000,  the  loss,  and  $8,250,  three-fourths  of  the  value, 
is  $750.  This  $750  is  covered  only  by  the  Aetna 
policy,  which  Is  the  compound  insurance. 

This  class  of  cases  comes  under  the  Cromle  rule, 
and  are  easily  disposed  of  when  fully  understood.  I 
will  apply  the  rule  to  this  case,  which  will  bring  out 
the  point  clearly. 

The  policy  with  the  three-fourths  value  clause  on 
it  covers  an  undivided  three-fourths  of  the  described 
property,  and  the  undivided  one-fourth  is,  if  there  is 
other  insurance,  without  this  clause,  an  interest  cov- 
ered only  by  the  compound  insurance.  The  one- 
fourth  interest  which  the  policy,  with  the  three- 
fourths  clause  on,  does  not  cover,  is  covered  by  the 
other  insurance,  which  does  not  have  the  three- 
fourths  value  clause  in  the  contract,  and  it  is  the 
compound  insurance. 

Apportfonment  and  Contribution   on   One-Fourth 

Interest. 

Aetna  insures    $750     Pays  $750 

Total  loss  paid   $750 

Apportionment  and  Contribution  on  Three-Fourths 
Interest. 

Continental  insures   $5,000     Pays  $4,459.46 

Aetna  insures 4,250     Pays    3,790.54 

Total  loss  paid $8,250.00 

Aetna  pays  one-fourth  interest $750.00 

Aetna  pays  three-fourths  interest 3,790.54 

Total  loss  paid  $4,540.54 

Continental  pays  $4,459.46 

Aetna  pays    4,540.54 

Total  loss  paid    $9,000.00 

THREE-FOURTHS   LOSS  CLAUSE. 

This  clause  is  a  limitation  of  the  loss  liability  of 
all  the  companies  to  three-fourths  of  the  loss,  and  the 


78  THE  APPORTIONMENT  OF  LOSS  AND 

three-fourths  of  the  loss  is  the  basis  of  contribution. 
Each  company  pays  its  pro  rata  proportion  of  this 
amount  as  provided  by  the  pro  rata  contribution 
clause.  This  clause  deals  entirely  with  the  amount 
of  the  loss.  In  all  other  respects  its  application  is 
the  same  as  that  of  the  three-fourths  value  clause. 

The  three-fourths  loss  clause  produces  a  limit  of 
loss  liability,  and  though  the  clause  differs  from  the 
three-fourths  value  clause,  it  would,  if  there  was 
other  insurance  without  the  clause,  be  covered  by  the 
rule  made  by  the  court  in  the  Cromie  case.  The 
three-fourths  loss  clause  is  so  little  used  now  it  is 
unnecessary  to  apply  it  to  an  actual  case.  It  makes 
no  difference  what  the  percentage  of  limit  of  loss 
liability  is.  The  rule  can  and  should  be  applied  in 
every  case. 

LIVE  STOCK   LIMITATION  CLAUSE. 

.  There  are  several  kinds  of  live  stock  limitation 
clauses,  but  those  that  are  of  this  class  (Class  Num- 
ber One)  are  short  and  differ  in  the  wording,  but  all 
of  them  have  the  same  meaning.  "No  animal  to  be 
valued  above  $100"  and  "The  total  loss  on  any  ani- 
mal not  to  exceed  $200,"  are  the  common  forms  of 
this  clause. 

The  limit  named  in  this  clause  is  the  maximum 
limit  of  loss  liability  of  all  the  insurance.  This 
limit  is  the  basis  of  contribution,  but  the  contribu- 
tion is  made  from  the  total  insurance,  according  to 
the  pro  rata  contribution  clause. 

Statement. 

Continental — On  horses $1,500 

Aetna — On  horses    1,000 

No  horse  to  be  valued  above  $500  is  the  limitation 
of  liability.    The  one  horse  killed  was  worth  $750. 

Apportionment  and   Contribution. 

Continental   insures    $1,500     Pays  $300 

.Aetna  insures    1,000     Pays    200 

Total  loss  paid    $500 

The  insured,  though  he  has  insurance  for  $1,750 
more  than  his  loss,  receives  $250  less  than  the  loss. 
In  this  case  the  assured  has  surrendered  and  con- 
tracted away  his  right  to  recover  his  full  loss.  He 
has  limited  his  right  of  recovery  from  all  the  com- 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     79 

panies  to  not  exceeding  $500.  There  is  no  arbitrary 
apportionment  of  the  insurance,  so  that  there  would 
be  no  chance  for  a  court  to  increase  this  amount  un- 
less it  nullified  the  limitation  clause. 

Statement. 

Continental — On  horses   $1,500 

Aetna — On  horses   1,000 

There  is  no  limitation  clause  on  the  Continental 
policy.  No  animal  to  be  valued  above  $500  is  the 
limit  fixed  in  the  Aetua  policy.  The  value  of  the 
one  horse  killed  was  $750. 

We  have  here  non-concurrent  insurance.  The  pol- 
icy of  the  Continental  is  compound  insurance.  The 
liability  for  all  the  insurance,  as  fixed  by  the  limita- 
tion clause  in  the  Aetna  policy,  is  $500,  and  to  this 
extent  the  policies  are  concurrent.  There  is  a  lia- 
bility here  which  is  covered  by  the  Continental  pol- 
icy alone,  and  it  is  $250,  which  is  the  difference  be- 
tween $750,  the  loss,  and  $500,  the  maximum  limit 
of  loss  liability  for  all  the  insurance,  as  fixed  by  the 
Aetna  policy. 

Apportionment   and    Contribution    on    Interest 

Covered  Only  by  the  Continental. 

Continental   insures    $250     Pays  $250 

'i*otal  loss  paid  $250 

The  amount  of  the  Continental  policy  has  been  re- 
duced $250,  the  amount  apportioned  to  pay  its  undi- 
vided liability,  which  leaves  $1,250  to  contribute  with 
the  $1,000  policy  of  the  Aetna  to  pay  the  $500,  the 
liability  of  both  companies. 

Apportionment   and    Contribution    on    Interest 
Covered   by   Both   Companies. 

Continental   insures    $1,250     Pays  $277.77 

Aetna  insures   1,000     Pays    222.23 

Total  loss  paid   $500 

Continental  pays  under  first  apportionment. .  .$250.00 
Continental  pays  under  second  apportionment.  277.77 


Total  loss  paid   $527.77 

Continental  pays ^ $527.77 

Aetna  pays    222.23 


Total  loss  paid $750.00 


80  THE  APPORTIONMENT  OF  LOSS  AND 

This  case,  because  of  the  compound  insurance,  re- 
quires an  arbitrary  apportionment,  and  it  comes 
within  the  scope  of  the  Cromie  Rule.  I  have  applied 
the  Cromie  Rule  in  this  adjustment. 

Class  Number  Two. 

If  the  total  loss  is  the  basis  of  contribution,  and 
the  liability  of  each  company  is  fixed  in  its  policy  by 
a  special  limit,  the  clause  belongs  to  this  class. 

This  class  includes  the  ordinary  live  stock  clauses 
where  the  liability  of  the  company  is  limited  to  not 
exceeding  a  stated  amount,  or  three-fourths  of  the 
value. 

LIVE   STOCK    LIMITATION   CLAUSE. 

It  is  hereby  expressly  provided  and  mutually 
agreed,  that  in  no  case  (except  in  the  case  of  more 
valuable  animals  insured  specifically  hereunder  by 
names  and  numbers)  shall  this  company  be  liable  for 
more  than  $75  on  any  one  Horse  or  Mule,  nor  for 
more  than  $35  on  any  Colt  under  two  years  old:  nor 
for  more  than  $20  on  any  Colt  under  one  year  old; 
nor  for  more  than  $30  on  any  one  head  of  Cattle,  nor 
for  more  than  $15  per  head  if  under  two  years  old; 
nor  for  more  than  $3  on  any  one  Sheep,  or  $10  on 
any  one  Hog;  nor  in  any  case  for  more  than  the 
actual  cash  value  of  the  animal  of  any  class  destroyed 
or  damaged. 

This  live  stock  limitation  clause  is  found  in  all  of 
our  farm  policies  and  applications.  The  first  ques- 
tion that  arises  is.  What  is  the  limitation  effect  of 
this  clause?  Is  it  a  loss  limitation  only,  or  is  it  a 
maximum  of  loss  limitation  and  contributive 
liability? 

This  clause  is  a  maximum  limitation  of  loss  lia- 
bility. The  amount  named  as  the  limit  of  liability 
on  each  class  of  animals  is  the  limit  of  the  loss  lia- 
bility on  the  animal  of  that  class,  and  the  total  in- 
surance is  the  maximum  contributive  liability. 

At  first  it  seems  more  reasonable  to  consider  it  a 
maximum  limitation  of  loss  and  contributive  liabil- 
ity, but  after  applying  it  to  several  cases  as  such, 
and  studying  the  result  and  probable  complications 
that  may  arise,  I  am  satisfied  it  is  simply  intended 
as  a  limitation  of  loss  liability. 

Reduced  Rate  for  Live  Stock  Insurance. 

In  consideration  of  the  acceptance  by  the  assured 
of  the  following  clause  and  his  agreement  that  the- 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     81 

same  shall  be  made  a  part  of  his  policy,  a  reduction 
in  the  rate  of  premium  on  live  stock  has  been  al- 
lowed from  3  per  cent,  to  2  per  cent.  The  clause 
referred  to  is  as  follows,  viz:  It  is  a  part  of  the 
consideration  of  this  policy,  and  the  basis  upon  which 
the  rate  of  premium  is  fixed,  that  in  case  of  loss  on 
any  particular  kind  of  live  stock,  claim  for  same 
shall  not  exceed  three-fourths  of  the  value  of  such 
animal  killed,  and  shall  not  exceed  the  limit  on  such 
animal  as  specified  in  this  policy. 

This  clause  simply  limits  the  liability.  If  an  ani- 
mal is  worth  $40,  this  clause  makes  a  limit  of  $30, 
and  the  effect  of  this  clause  is  the  same  as  it  would 
be  if  the  limit  in  the  policy  was  $30. 

In  this  class  of  cases  there  is  no  arbitrary  appor- 
tionment. The  contribution  to  be  made  on  each  ani- 
mal is  provided  for  in  the  pro  rata  contribution 
clause.  The  pro  rata  contribution  is  made  first,  and 
the  limitation  clauses,  if  practicable,  are  applied 
afterwards  to  determine  the  actual  liability  of  each 
company. 

Statement. 

Continental— On  horses $200     Limit  $75 

Aetna — On  horses   500      No  limit. 

The  loss  was  one  horse  worth  $210. 

Apportionment  and   Contribution. 

Continental  insures   $200     Pro  rata  liability  $60 

Aetna  insures  500     Pro  rata  liability  150 

Total  pro  rata  liability $210 

The  application  of  the  pro  rata  contribution  clause 
fixes  the  loss  of  the  Continental  at  $60,  and  as  this 
is  less  than  the  limit,  the  limitation  clause  does  not 
apply.  The  liability  of  the  Aetna  is  made  $150,  and 
as  this  exceeds  its  special  limit  of  liability,  the  lim- 
itation clause  must  be  applied,  and  it  makes  the  loss 
$75. 

Continental  pays  $60 

Aetna  pays   75 

Total  loss  paid  $135 

This  limitation  clause  is  a  special  contract  made 
between  the  assured  and  the  company,  and  it  becomes 
operative  only  when  the  contribution  to  be  made  by 
any  company,  under  the  pro  rata  contribution  clause, 
exceeds  the  limit. 


82  THE  APPORTIONMENT  OF  LOSS  AND 

We  sometimes  have  cases  where  the  limits  of  loss 
liability  on  each  animal  are  different.  I  will  apply 
the  rule  to  a  case  of  this  kind: 

Statement. 

Continental — On  horses   $200    Limit  $75 

Aetna — On  horses    500    No  limit. 

One  horse,  valued  at  $210,  was  killed. 

Apportionment  and   Contrfbution. 

Continental  insures  $200     Pays  $60 

Aetna  insures   500    Pays  150 

Total  loss  paid   $210 

The  pro  rata  liability  of  the  Continental  is  $60, 
which  is  less  than  its  limit.  The  Aetna  has  no  limit, 
therefore  it  must  pay  $150.  In  this  case  the  assured 
receives  his  full  loss. 

The  case  I  will  call  your  attention  to  now  is  the 
same  as  the  last,  except  that  there  are  three  compa- 
nies and  three  different  limits. 

Statement. 

Continental — On  horses $300    Limit  $75 

Aetna— On  horses   500    Limit  100 

Home — On  horses    500    No  limit. 

The  loss  was  one  horse  killed,  worth  $400. 

There  are  three  companies  and  one  has  a  limit  of 
liability  of  $75,  one  of  $100,  and  the  Home  has  no 
limit. 

Apportionment  and  Contribution. 

Continental  insures  . .  .$300     Pro  rata  liability  $92.30 

Aetna  insures 500    Pro  rata  liability  153.85 

Home  insures 500     Pro  rata  liability  153.85 

Total  pro  rata  liability $400.00 

The  liability  of  the  Continental  is  limited  to  $75, 
and  that  of  the  Aetna  to  $100,  and  the  Home  has  no 
special  limit 
The  companies  would  pay  as  follows: 

Continental  pays  $75.00 

Aetna  pays  100.00 

Home  pays  153.85 

Total-loss  paid  $328.85 

I  will  apply  this  rule  to  another  case  which  may 
come  up  under  this  live  stock  limitation  clause. 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     83 

Statement. 

Continental — On  horses   $300 

Aetna — On  horses   500 

Home — On  horses   500 

Aetna  and  Home  have  no  limit,  but  the  Continental 
has  a  limit  of  $75  on  horses,  and  $35  if  under  two 
years  of  age. 

There  was  one  horse  killed,  worth  $280,  and  one 
colt  killed,  worth  $150,  which  was  under  two  years 
old.    The  total  loss  being  $430. 

Apportionment  and  Contribution. 

Continental  insures  . .  .$300     Pro  rata  liability  $99.24 

Aetna  insures 500     Pro  rata  liability  165.38 

Home  insures 500     Pro  rata  liability  165.38 


Total  pro  rata  liability $430.00 

In  this  pro  rata  contribution  I  have  made  the  total 
loss  on  the  horse  and  colt  the  basis  of  contribution. 
"VVe  can  not  tell  from  this  contribution  whether  the 
Continental  contributes  more  than  $75  on  the  horse 
and  $35  on  the  colt,  or  not.  In  order  to  avoid  the 
mistakes  that  might  result  from  this  form  of  state- 
ment, I  would  suggest  that  the  contribution  be  made 
on  each  animal. 

Apportionment  and  Contribution  on  Horse. 

Continental  insures  ...$300     Pro  rata  liability  $64.62 

Aetna  insures 500     Pro  rata  liability  107.69 

Home  insures 500     Pro  rata  liability  107.69 


Total  pro  rata  liability $280.00 

Apportionment  and   Contribution   on   Colt. 

Continental  insures  ...$300     Pro  rata  liability  $34.62 

Aetna  insures  500     Pro  rata  liability     57.69 

Home  insures 500     Pro  rata  liability     57.69 


Total  pro  rata  liability $150.00 

The  limit  fixed  by  the  Continental  policy  was  $75  on 
the  horse  and  $35  on  the  colt.  In  the  statement 
showing  the  pro  rata  liability  of  the  Continental 
there  is  $64.62  on  the  horse,  and  $34.62  on  the  colt 
Both  of  these  amounts  are  less  than  the  limits,  and 
amount  to  $99.24. 


84  THE  APPORTIONMENT  OF  LOSS  AND 


Continental  pays  on  horse $64.62 

Continental  pays  on  colt 34.62 

Total  loss  paid  $99.24 

Aetna  pays  on  horse  $107.69 

Aetna  pays  on  colt 57.69 

Total  loss  paid $165.38 

Home  pays  on  horse  $107.69 

Home  pays  on  colt 57.69 

Total  loss  paid   $165.38 

Continental  pays  $99.24 

Aetna  pays  ^ 165.38 

Home  pays 165.38 

Total  loss  paid   $430.00 

There  are  cases,  sometimes,  which  require  our  at- 
tention that  are  very  badly  mixed.  Where  the  poli- 
cies are  different.  Where  no  two  of  them  are  con- 
current. The  Supreme  Court  of  Wisconsin  decided  a 
case  of  this  kind,  and  as  it  will  be  a  good  opinion  to 
study,  I  will  make  it  a  part  of  this  communication. 

The  case  of  Sherman  vs.  Madison  Mutual  Insurance 
Company,  which  was  decided  by  the  Supreme  Court 
of  Wisconsin  February  1,  1876,  undoubtedly  involves 
a  more  complicated  state  of  facts  than  you  will  ever 
find  in  your  work. 

Statement. 

The  Madison  Mutual  Insurance  Company  covered 
$1,500  on  cattle,  with  no  limitation  clause.  The  Con- 
tinental Insurance  Company  had  a  line  of  $1,667  on 
cattle,  being  not  to  exceed  $500  on  any  one  animal. 
The  North  Missouri  Insurance  Company  carried  $1,- 
667  on  cattle,  and  no  one  animal  to  he  valued  at  more 
than  $500. 

There  was  a  loss  on  one  bull,  valued  at  $2,000,  and 
three  steers,  worth  $336. 

Decision. 

"The  defendant  company  issued  three  policies  of 
insurance  to  the  plaintiff,  of  five  hundred  each,  on 
stock.  A  loss  having  occurred,  the  defendant  paid 
the  plaintiff  $724.96  on  account  thereof,  claiming  that 
to  be  the  extent  of  its  liability.  The  plaintiff  claimed 
that  its  liability  exceeded  that  sum,  and  brought  this 
action  to  recover  such  excess.  The  complaint  is  in 
the  usual  form  of  such  complaints  on  fire  insurance 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     85 

policies.  As  defenses  to  this  action  it  is  alleged  in 
the  answer:  1.  That  the  policies  contained  cove- 
nants that  they  should  be  void  if  the  plaintiff  pro- 
cured other  insurance  on  the  property,  and  failed  to 
give  notice  thereof  to  the  defendant,  and  have  the 
same  endorsed  on  the  policies,  and  that  the  plaintiff 
obtained  other  insurance  thereon,  but  failed  to  give 
such  notice.  2.  That  if  the  policies  are  valid  there 
was  other  insurance  on  the  property,  and  under  the 
usual  clause,  that  in  case  of  loss  the  defendant  should 
be  liable  only  for  a  proportionate  share  thereof,  it 
has  already  paid  its  share  of  the  loss  in  full. 

"The  cause  was  tried  by  the  court  without  a  jury, 
and  on  the  trial  witnesses  called  by  the  plaintiff  tes- 
tified to  computations  produced  by  them  of  the 
amount  of  the  defendant's  liability  on  the  policies  in 
suit,  and  also  testified  as  experts  to  the  rule  for  ad- 
justing the  loss. 

"The  judge  subsequently  filed  his  findings  of  fact 
and  conclusions  of  law  therefrom,  and  ordered  judg- 
ment for  the  plaintiff  in  accordance  therewith.  Judg- 
ment as  above  directed  was  entered  for  the  plaintiff, 
and  the  defendant  has  appealed  therefrom. 

"It  only  remains  to  determine  whether  the  county 
court  correctly  adjusted  the  plaintiff's  loss.  The  ad- 
justment is  contained  in  the  tenth  finding  of  the  fact, 
although  such  finding  is  substantially  a  conclusion 
of  law,  and  must  be  treated  as  such. 

"The  live  stock  destroyed  exceeded  in  value  the 
amount  of  the  risk  taken  thereon  by  the  defendant, 
and  but  for  the  other  insurance  thereon,  the  defend- 
ant would  be  liable  to  pay  the  whole  risk.  The 
clause  in  the  policies  which  reduces  such  liability  is 
as  follows:  'In  all  cases  of  other  insurance  upon  the 
property,  whether  prior  or  subsequent  to  the  date  of 
this  policy,  in  case  of  loss  or  damage  by  fire,  the 
insured  shall  not  be  entitled  to  demand  or  recover 
on  this  policy  any  greater  portion  of  the  loss  or  dam- 
age sustained  than  the  amount  hereby  insured  bears 
to  the  whole  amount  insured  on  said  property.'  The 
clause  itself  furnishes  the  rule  of  adjustment  in  rea- 
sonably plain  terms,  and  there  should  not  be  much 
difficulty  in  the  application  of  the  rule  to  particular 
cases.  Where  there  are  several  risks  upon  the  same 
property,  giving  the  amount  of  each  and  the  loss,  it 
is  an  easy  process  to  apportion  the  loss  to  the  several 
risks. 

"It  is  said  on  behalf  of  the  defendant  that  the  ag- 
gregate of  insurance  on  the  live  stock  was  $4,833.33 


86  THE  APPORTIONMENT  OP  LOSS  AND 

and  the  loss  $2,336,  and  that  the  amount  of  defend- 
ant's liability  is  a  mere  problem  in  proportion,  which 
may  be  stated  and  solved  thus:  $4,833.33  :  $1,500  :  : 
$2,336  :  $725.  This  process  makes  the  defendant  lia- 
ble only  for  the  sum  which  it  voluntarily  paid  before 
the  action  was  commenced,  and  if  correct,  defeats  the 
action.  But  is  it  correct?  The  plaintiff  is  entitled 
to  full  indemnity  for  his  loss;  that  is,  he  is  entitled 
to  receive  from  the  three  companies  who  insured  his 
live  stock  $2,336.  That  is  a  right  which  he  has  paid 
for,  and  has  not  surrendered  or  stipulated  away.  It 
is  entirely  clear  that  the  liability  of  the  North  Mis- 
souri Company  (stated  in  round  numbers)  is  only 
$288,  and  of  the  Continental  but  $616.  So  the  for- 
mula given  on  behalf  of  the  defendant  falls  short  of 
full  indemnity  to  the  plaintiff  over  $700.  Hence  it  is 
incorrect,  and  the  error  in  it  is  very  apparent. 

"It  is  true  that  the  plaintiff  had  insurance  to  the 
amount  of  $4,833.33  on  his  steers,  and  also  his  bull, 
valued  at  $500,  and  to  that  extent  the  above  formula 
is  entirely  applicable.  But  he  had  not  that  amount 
of  insurance  on  the  residue  of  the  value  of  his  bull. 
On  such  residue  the  North  Missouri  had  no  risk 
whatever;  the  Continental  had  a  risk  limited  by  its 
contract  with  the  plaintiff  to  $500  on  the  bull,  which 
left  only  $327.50  on  the  residue  of  his  value  over 
$500,  and  the  defendant,  after  deducting  its  propor- 
tion of  the  loss  on  the  steers  and  on  the  bull  valued 
at  $500  (being  $260)  had  a  risk  of  $1,240  on  such 
residue.  So  instead  of  having  an  insurance  of  $4,- 
833.33  on  $1,500  of  the  value  of  his  bull,  the  plaintiff 
had  only  $1,567.50  insurance  thereon.  Suppose,  in- 
stead of  losing  one  bull  worth  $2,000,  the  plaintiff 
had  lost  two  bulls,  one  worth  $500,  the  other  worth 
$1,500;  and  suppose  also  that  the  North  Missouri  pol- 
icy did  not  include  the  latter,  and  that  the  liability 
of  the  Continental  on  both  bulls  was  limited  to  $500, 
the  rule  for  adjusting  the  loss  between  the  three 
companies  would  be  perfectly  plain.  They  would  pay 
pro  rata  for  the  steers  and  the  $500  bull.  The  Con- 
tinental would  pay  $327.50  of  the  value  of  the  other 
bull,  and  the  defendant  would  be  liable  for  the  bal- 
ance thereof,  being  $1,172.50. 

**We  think  the  case  supposed  and  the  one  under 
consideration  are  identical  in  principle  and  resulta, 
and  that  the  learned  county  judge  correctly  adjusted 
the  liability  of  the  defendant  for  the  plaintiff's  loss. 

"We  construe  the  contracts  before  us,  and  adjust 
and  determine  the  liability  of  the  defendant,  in  the 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     87 

light  of  legal  principles  as  we  understand  them,  with- 
out resorting  to  the  opinions  of  the  experts,  yet  we 
use  their  computations  precisely  as  a  court  may  use 
a  computation  of  the  amount  due  on  a  promissory 
note,  verified  by  a  witness  on  the  stand.  It  is  unnec- 
essary, therefore,  to  determine  whether  the  rule  of 
adjustment  in  this  or  any  other  case  may  be  proved 
by  the  testimony  of  experts. 

"Judgment  affirmed." 

Sherman  vs.  Madison  Ins.  Co.,  39  Wis.  104. 

This  case  was  reported  in  the  Insurance  Law  Jour- 
nal, and  the  publisher  added  the  following  note  to 
the  opinion: 

Note. — As  this  case  is  of  special  importance  to  ad- 
justers, the  following  explanation  will  make  it  more 
intelligible.  Company  (1)  insures  on  live  stock, 
$1,500.  Company  (2)  insures  on  live  stock,  $1,667, 
'being  not  to  exceed  $500  on  any  one  animal.'  Com- 
pany (3)  insures  live  stock,  $1,667,  'no  one  animal  to 
be  valued  at  more  than  $500.'  Loss,  one  bull,  $2,000, 
and  three  steers,  $336;  total,  $2,336. 

"The  adjustment  of  the  court  may  be  stated  thus: 
Total  insurance  on  steers  and  on  bull,  valued  at  $500, 
$4,834,  on  which  all  pro  rate  as  follows: 

Bull  at  $500.  Steers. 

Company   (1)   pays  '. $155  $105 

Company  (2)  pays  172  116 

Company  (3)  pays 172  116. 

"Leaving  Company  (2)  $328  of  unexhausted  insur- 
ance on  the  bull,  which  is  applied  to  the  excess  of 
value  above  $500;  the  remained  of  that  excess,  $1,- 
172,  is  to  be  borne  by  Company  (1),  making  the  total; 
I)ayment  of  each  as  follows:  Company  (1),  $1,432; 
Company  (2),  $616;  Company  (3),  $288." 

Sherman  vs.  Madison  Mutual  Insurance  Company, 
5  Ins.  Law  Journal  285. 

I  do  hot  give  you  a  copy  of  the  Sherman  case  be- 
cause I  think  it  a  correct  adjustment  of  this  claim. 
It  is  a  complicated  case,  and  therefore  a  good  one  to 
study. 

The  adjustment  of  this  claim  necessitates  consid- 
ering the  conditions  of  three  policies,  each  one  of 
which  is  subject  to  a  different  rule,  to  determine  its 
liability. 

The  policies  (there  were  three  of  them)  of  the 
Madison  Mutual  did  not  contain  any  special  limita- 
tion clause.     Its  liability,  then,  was  a  pro  rata  pro- 


58  THE  APPORTIONMENT  OF  LOSS  AND 

portion  of  the  loss,  as  provided  by  the  pro  rata  con- 
tribution clause.  If  all  of  the  insurance  had  been  of 
this  class,  the  adjustment  would  be  easy. 

The  policy  issued  by  the  Continental  was  like  those 
of  the  Madison  Mutual,  except  that  it  contained  this 
clause:  ''Being  not  to  exceed  $500  on  any  one  ani- 
mal.'' This  policy  is  liable  for  its  pro  rata  proportion 
of  the  loss,  but  not  exceeding  the  limit  of  $500  for 
any  one  animal.  In  this  class  of  cases  the  pro  rata 
liability  is  determined  first,  and  if  the  liability  on 
any  one  animal  exceeds  the  limit,  the  limitation 
clause  is  applied.  This  policy  belongs  to  what  I  call 
Class  No.  2. 

The  North  Missouri  had  a  policy,  same  as  those  of 
the  Madison  Mutual,  except  that  it  contained  the  fol- 
lowing limitation  clause:  "No  one  animal  to  he  val- 
ued at  more  than  $500.'"  This  class  of  insurance  is 
described  in  what  I  have  called  Class  No.  1.  The  lia- 
bility of  this  company  is  its  pro  rata  proportion  of 
the  loss,  but  the  loss,  which  is  the  basis  for  contri- 
bution, must  not  exceed  $500  on  any  one  animal.  The 
maximum  liability  of  all  the  insurance  is  fixed  first 
in  these  cases,  and  then  the  liability  of  each  company 
is  ascertained  by  applying  the  pro  rata  contribution 
clause. 

In  making  a  statement  of  this  case,  I  will  call  the 
whole  insurance  $4,834. 

You  probably  have  noticed  that  the  court  made  all 
of  the  insurance  ($4,834)  contribute  to  pay  $500  on 
the  bull,  which  was  the  maximum  limit  of  contribu- 
tion fixed  in  the  North  Missouri  policy,  and  $336  on 
the  three  steers.  As  the  bull  was  worth  $2,000,  there 
is  an  interest  of  $1,500  in  the  bull,  which,  for  the  pur- 
pose of  adjusting  the  liability  of  the  North  Missouri, 
the  court  entirely  ignored.  The  court  applied  what 
I  have  herein  named  the  Chicago  and  Hartford  rules. 
The  court  did  not  do  justice  to  the  Madison  Mutual. 
This  company,  with  $1,500  insurance,  is  made  to 
•contribute  from  $2,740,  and  the  Continental,  with  a 
policy  of  $1,667,  is  treated  as  if  it  were  a  policy  of 
:$3,046.  The  insurance  of  the  Madison  Mutual  and 
Continental  is  compound.  These  companies  cover  the 
$1,500  interest  in  the  bull,  which  is  not  covered  by  the 
North  Missouri.  These  two  companies  must  pay  this 
$1,500.  This  feature  of  the  adjustment  comes  within 
the  scope  of  the  Cromie  rule.  An  amount  of  the  two 
policies  equal  to  the  loss  must  be  apportioned  as  the 
insurance  to  pay  the  loss. 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     89 

We  have  a  claim  of  $1,500,  and  the  two  companies, 
with  $3,167  of  insurance,  must  furnish  the  insurance 
to  pay  this  amount.  The  Madison  Mutual  should  fur- 
nish 1,500/3,167  and  the  Continental  1,677/3,167. 

Apportionment. 

Madison  Mutual,  on  $1,500  interest $710.46 

Continental,  on  $1,500  interest 789.54 

Total  insurance  $1,500.00 

You  will  notice  that  the  Continental  is  called  on 
for  $789.54  insurance,  and,  under  this  apportionment, 
would  have  to  pay  the  same  amount.  It  can  not  do 
it,  as  its  limit  is  $500.  It  is  evident  that  $1,000  of 
the  Madison  Mutual  and  $500  of  the  Continental  in- 
surance must  satisfy  this  $1,500  claim. 


Re-Apportionment   and   Contribution   on   $1,500 
Interest. 

Madison  Mutual  insures $1,000     Pays  $1,000 

Continental   insures    500     Pays      500 

Total  loss  paid $1,500 

The  Madison  Mutual  now  has  $1,500  insurance  on 
$500  interest  in  bull  and  on  the  steers.  The  Conti- 
nental has  paid  its  limit  of  loss  liability  on  the  bull, 
and  now  has  $1,167  insurance  on  the  steers.  The 
North  Missouri  has  $1,167  insurance  on  the  $500  in- 
terest in  the  bull  and  on  steers. 

The  insurance  remaining,  as  stated  above,  should 
be  apportioned  as  provided  in  the  Griswold  Rule,  and 
the  $500  of  the  Madison  Mutual  insurance,  and  $1,- 
167,  the  amount  of  the  North  Missouri  policy,  should 
be  made  specific  on  the  bull  and  steers,  as  follows: 
500/836  covering  bull  and  336/836  being  apportioned 
to  the  steers.  The  Madison  Mutual  would  have  $299.- 
04  on  bull,  and  $669.99  on  steers. 


Apportionment  and  Contribution  on  $500  Interest   In 
Bull. 

Madison  Mutual   insures $294.04     Pays  $115.36 

North  Missouri  insures 997.01     Pays    384.64 


Total  loss  paid  $500.00 


90  THE  APPORTIONMENT  OP  LOSS  AND 

Apportionment  and  Contribution  on  Steers. 

Madison  Mutual  insures    $200.96     Pays  $33.13 

Continental  insures    1,167.00     Pays  192.41 

North  Missouri  insures   669.99     Pays  110.46 

Total  loss  paid .$336.00 

Madison  Mutual  pays  under  first  apportion- 
ment   $1,000.00 

Madison  Mutual  pays  under  second  appor- 
tionment        115.36 

Madison  Mutual  pays  under  third  apportion- 
ment         33.13 


Total  loss  paid $1,148.49 

Continental  pays  under  first  apportionment...    500.00 
Continental  pays  under  third  apportionment.      192.41 

Total  loss  paid 692.41 

North  Missouri  pays  under  second  appor- 
tionment      384.64 

North  Missouri  pays  under  third  apportion- 
ment        110.46 

Total  loss  paid $495.10 

Madison  Mutual  pays $1,148.49 

Continental  pays  692.41 

North  Missouri  pays   495.10 

Total  loss  paid    $2,336.00 

It  will  not  do  to  assume,  for  the  purpose  of  fixing 
the  liability  of  the  North  Missouri,  that  the  whole  . 
insurance  covered  only  the  property  and  interest  it 
was  pro  rata  liable  for.  There  was  $1,500  of  the  Mad- 
ison Mutual  and  Continental  policies  that  covered 
from  the  time  of  the  fire  on  the  $1,500  interest  in  the 
bull,  and  this  is  a  fact  as  much  as  if  their  policies, 
to  the  extent  of  $1,500,  had  been  written  specifically 
on  this  particular  interest  in  the  bull. 

Class  Nunnber  Three. 

This  class  includes  all  limitation  clauses  which  fix 
the  liability  of  a  company,  without  reference  to  the 
other  insurance  and  pro  rata  contribution  clause^ 
This  class  includes  all  co-insurance  clauses. 

CO-INSURANCE  CLAUSES. 

The  co-insurance  clauses  are  limitation  clauses,  and 
they  are  a  specific  contract  made  by  the  assured  and 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     91 

the  company  which  has  a  co-insurance  clause  on  its 
policy. 

In  cases  of  this  class  the  rule  generally  applied  for 
the  purpose  of  fixing  the  loss,  to  be  paid  by  each  class 
of  companies  is  to  make  the  apportionment  and  con- 
tribution of  each  class  as  if  all  the  insurance  was  the 
same.  That  is,  to  ascertain  what  loss  the  insurance 
with  the  co-insurance  clause  should  pay,  treat  the 
case  as  if  all  the  insurance  had  a  like  co-insurance 
clause.  I  will  apply  the  rule  to  a  case  where  one 
company  has  the  80  per  cent,  co-insurance  clause. 

EIGHTY   PER  CENT.  CO-INSURANCE  CLAUSE. 

"It  is  a  part  of  the  consideration  for  this  policy, 
and  the  basis  upon  which  the  rate  of  premium  is 
fixed,  that  the  assured  shall  maintain  insurance  on 
the  property  described  by  this  policy  to  the  extent 
of  at  least  eighty  (80)  per  cent,  of  the  actual  cash 
value  thereof,  and  that,  failing  so  to  do,  the  assured 
shall  be  a  co-insurer  to  the  extent  of  such  deficit,  and 
to  that  extent  shall  bear  his,  her  or  their  proportion 
of  any  loss,  and  it  is  expressly  agreed  that  in  case 
there  shall  be  more  than  one  item  or  division  in  the 
form  of  this  policy,  this  clause  shall  apply  to  each 
and  every  item." 

Statement. 

Continental  insures  $5,000. 
Aetna  insures  $6,000. 
Home  insures  $9,000. 

The  only  policy  having  the  80  per  cent,  co-insurance 
clause  is  the  Continental.  The  loss  is  $12,000,  and 
sound  value  $40,000.  The  assured  has  agreed  to  carry 
$32,000  insurance  or  become  a  co-insurer  for  the  dif- 
ference between  the  $32,000  and  $20,000,  the  amount 
of  insurance  which  he  actually  carried,  which  is 
$12,000. 

Apportionment  and  Contribution. 

Continental   insures    $5,000  Pays  $1,875 

Aetna  insures    6,000  Pays    2,250 

Home  insures    9,000  Pays    3,375 

Assured  insures   12,000  Pays    4,500 

Total  loss  paid   $12,000 

This  shows  that  the  Continental  has  to  pay  $1,875, 
which,  being  five  thirty-seconds  of  $12,000,  we  know 
it  is  correct.     The  Aetna  and  Home  policies  did  not 


92  THE  APPORTIONMENT  OF  LOSS  AND 

have   the    80    per    cent,    co-insurance     clause,    conse- 
quently they  are  not  entitled  to  its  benefits. 

According  to  the  rule  which  we  are  applying,  we 
must  treat  all  the  policies  as  if  they  were  like  the 
Aetna  and  Home,  to  ascertain  what  amount  of  loss 
the  Aetna  and  Home  should  pay. 

Apportionment  and  Contribution. 

Continental  insures    $5,000     Pays  $3,000 

Aetna  insures  6,000     Pays    3,600 

Home  insures    9,000     Pays    5,400 

Total  loss  paid  $12,000 

Continental  pays  .- $1,875 

Aetna  pays . 3,600 

Home  pays  5,400 

Total  loss  paid   $10,875 

The  assured  loses,  by  his  failure  to  have  his  poli- 
cies concurrent,  $1,125.  The  liability  of  the  Conti- 
nental is  limited  by  a  special  contract  to  five  thirty- 
seconds  of  $12,000,  the  amount  of  the  loss.  The  lia- 
bility of  the  Aetna  and  Home  is  limited  by  the  pro 
rata  contribution  clause.  There  is  no  arbitrary  ap- 
portionment of  insurance  in  this  case. 

The  Continental,  as  you  will  see  by  the  application 
of  this  rule,  is  made  to  contribute  $3,000  to  pay  as- 
sured's  full  loss.  As  the  liability  of  the  Continental 
is  limited  by  a  special  agreement  with  assured  to 
$1,875,  the  assured  fails  to  get  his  full  loss  by  the 
application  of  this  rule,  though  the  insurance  ex- 
ceeded the  loss  by  $8,000. 

Under  either  the  full  co-insurance  clause  or  the 
average  clause — co-insurance  form — we  have  100  per 
cent,  co-insurance  agreement,  and  it  can  be  applied 
as  easily  as  the  80  per  cent,  co-insurance  clause. 

FULL  CO-INSURANCE  CLAUSE. 

If,  at  the  time  of  fire,  the  whole  amount  of  insur- 
ance on  the  property  covered  by  this  policy  shall  be 
less  than  the  actual  cash  value  thereof,  this  company 
shall,  in  case  of  loss  or  damage,  be  liable  for  such 
portion  only  of  the  loss  or  damage  as  the  amount  in- 
sured by  this  policy  shall  bear  to  the  actual  cash 
value  of  such  property. 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     9a 

AVERAGE  CLAUSE— CO-INSURANCE  FORM. 

It  is  understood  and  agreed  that,  in  case  of  loss 
under  this  policy,  the  company  shall  be  liable  only 
for  such  proportion  of  the  whole  loss  as  the  amount 
of  this  insurance  bears  to  the  cash  value  of  the  whole 
property  herein  described,  at  the  time  of  the  fire. 

Statement. 

Continental  insures  $5,000. 
Aetna  insures  $6,000. 
Home  insures  $9,000. 

The   Continental   policy   has    a    full     co-insurance 
clause,  and  the  others  have  none.     The  value  of  the  ' 
described  property  is  $40,000,  and  there  is  a  loss  of 
$12,000. 

I  will  make  the  contribution,  as  I  think  it  ought 
to  be  made,  under  a  full  co-insurance  clause. 

Apportionment  and  Contribution. 

Continental   insures    $5,000  Pays  $1,500 

Aetna  insures  6,000  Pays    1,800 

Home  insures    9,000  Pays    2,700 

Assured    insures    20,000  Pays    6,000 

Total  loss  paid   $12,000 

The  liability  of  the  Aetna  and  Home  is  fixed  by  the 
pro  rata  contribution  clause,  and  in  order  to  ascer- 
tain the  liability  of  these  companies,  we  must  con- 
sider the  Continental  as  a  co-insurer  to  the  extent  of 
$5,000,  and  leave  the  assured  out. 

Apportionment  and  Contribution. 

Continental   insures    $5,000     Pays  $3,000 

Aetna  insures 6,000     Pays    3,600 

Home  insures    9,000     Pays    5,400 

Total  loss  paid   $12,000 

Continental  pays $1,500 

Aetna  pays  3,600 

Home  pays   5,400 

Total  loss  paid   $10,500 

Each  one  of  the  companies  has  paid  all  its  contract 
makes  it  liable  for,  and  the  assured  loses  $1,500. 


94  THE  APPORTIONMENT  OF  LOSS  AND 

LIVE  STOCK  CO-INSURANCE  CLAUSE. 

"It  is  a  part  of  the  consideration  of  this  policy  and 
the  basis  upon  which  the  rate  of  premium  is  fixed 
that  in  case  of  loss  on  any  particular  kind  of  live 
stock,  claim  for  same  shall  not  exceed  such  propor- 
tion of  said  loss  as  the  amount  herein  insured  on 
such  particular  kind  of  live  stock  bears  to  three- 
fourths  of  the  entire  value  of  that  kind  of  live  stock 
owned  by  the  assured  at  the  time  of  loss,  and  shall 
not  exceed  the  limit  on  each  animal  as  specified  in 
this  policy,  nor  its  value." 

This  is  a  75  per  cent,  co-insurance  clause,  and  in 
its  application  is  governed  by  the  same  rules  applied 
•  to  the  80  per  cent.,  and  full  co-insurance  clauses. 

I  have  been  able  to  find  but  one  decision  touching 
the  point  I  have  herein  raised  regarding  the  contri- 
bution between  policies  when  some  have  and  some 
have  not  a  co-insurance  clause.  This  case  was  lately 
decided  by  the  Missouri  Appellate  Court.  It  is  the 
case  of  Armour  Packing  Company  vs.  Reading  Fire 
Insurance  Company,  57  Mo.  App.  215. 

In  this  decision  the  court  held  that  when  there  is 
other  insurance  without  the  co-insurance  clause,  the 
purpose  and  effect  of  a  co-insurance  clause  is  to 
limit  the  loss  liability  of  a  company  by  fixing  the 
maximum  contributive  liability.  If  we  have  a  $5,000 
policy  with  an  80  per  cent,  co-insurance  clause,  where 
the  sound  value  is  $40,000,  and  $15,000  additional 
insurance,  without  a  similar  co-insurance  clause,  we 
would  have,  for  the  purpose  of  contribution,  $2,777.78 
of  specific  insurance. 

This  $2,777.78  of  insurance  made  specific  under  a 
policy  issued  for  $5,000,  which  had  an  80  per  cent, 
co-insurance  clause,  because  there  were  other  policies 
without  the  co-insurance  clause,  is  as  much  an  item 
of  specific  insurance  for  the  purpose  of  contribution 
as  if  it  were  the  result  of  applying  the  average 
clause,  distribution  form,  or  as  if  it  were  so  stated 
in  the  policy,  if  this  decision  is  good  law. 

Rule. 

Multiply  the  amount  of  insurance  having  the  co- 
insurance clause  by  the  amount  of  insurance  carried 
without  the  co-insurance  clause,  and  divide  the  prod- 
uct by  amount  of  additional  insurance  the  assured 
agreed  to  carry,  and  the  quotient  will  be  the  amount 
of  specific  insurance  carried  under  the  co-insurance 
clauses.     Each  policy  with  a  co-insurance  clause  will 


CONTRIBUTION  OP  COMPOUND  INSURANCE.     95 

carrj^  such  a  part  of  this  specific  insurance  as  the 
amount  of  the  policy  hears  to  the  total  amount  of  all 
the  policies  with  the  co-insurance  clause. 

I  will  first  apply  this  rule  to  a  case  where  there 
was  an  80  per  cent,  co-insurance  clause  Involved. 

Statement. 

Continental  insures  $5,000. 
Aetna  insures  $6,000. 
Home  insures  $9,000. 

The  Continental  policy  is  the  only  one  with  an  80 
per  cent,  co-insurance  clause.  The  value  of  the  prop- 
erty covered  by  the  insurance  is  $40,000,  and  the  loss 
is  $12,000.  The  additional  insurance  carried  without 
the  80  per  cent,  co-insurance  clause  is  $15,000.  Eighty 
per  cent,  of  the  value  of  $40,000  is  $32,000,  which  is 
the  total  amount  of  insurance  the  assured  agreed  to 
carry. 

When  we  apply  the  rule  we  have  $5,000,  the  amount 
of  insurance  with  the  co-insurance  clause,  multiplied 
by  $15,000,  the  amount  of  additional  insurance  car- 
ried without  the  co-insurance  clause,  equals  $75,000,000, 
which,  divided  by  $27,000,  the  amount  of  additional 
insurance  assured  agreed  to  carry,  gives  $2,777.78, 
the  actual  amount  of  contributive  liability  of  the 
Continental. 

Apportionment  and  Contribution. 

Continental  insures   $2,777.78     Pays  $1,875 

Aetna  insures   6,000.00     Pays    4,050 

Home  insures    9,000.00     Pays    6,075 

Total  loss  paid  $12,000 

The  liability  of  the  Continental  to  the  assured  un- 
der the  80  per  cent,  co-insurance  clause  in  this  case 
is  five  thirty-seconds  of  $12,000.  As  this  is  $1,875, 
we  know  the  Continental  does  not  suffer  by  this  rule. 

I  apply  this  rule  to  make  plain  to  you  the  prin- 
ciple involved  in  the  Armour  decision. 

I  will  apply  the  rule  made  by  the  court  in  the 
Armour  case  to  determine  the  liability  of  the  com- 
panies under  a  full  co-insurance  clause. 

Statement. 

Continental  insures  $5,000. 
Aetna  insures  $6,000. 
Home  insures  $9,000. 


96  THE  APPORTIONMENT  OF  LOSS  AND 


There  is  a  full  co-insurance  clause  on  the  Conti- 
nental policy,  but  no  co-insurance  clauses  on  the 
policies  of  the  Aetna  and  Home.  The  property  cov- 
ered by  the  three  policies  was  worth  $40,000,  and 
there  is  a  loss  of  $12,000.  The  additional  insurance 
without  the  full  co-insurance  clause  is  $15,000.  The 
amount  of  insurance  the  assured  agreed  to  carry  was 
$40,000. 

We  apply  the  rule,  and  have  $5,000,  the  amount  of 
insurance  with  the  co-insurance  clause,  ipiultiplied  by 
$15,000,  the  amount  of  additional  insurance  carried 
without  a  co-insurance  clause,  gives  us  $75,000,000, 
which,  divided  by  $35,000,  the  amount  of  additional 
insurance  the  assured  agreed  to  carry,  gives  $2,- 
142.86. 

Apportionment  and  Contribution. 

Continental  insures    $2,142.86     Pays  $1,500 

Aetna   insures    6,000.00     Pays    4,200 

Home  insures 9,000.00     Pays    6,300 

Total  loss  paid   $12,000 

The  liability  of  the  Continental,  if  there  were  no 
other  insurance,  would  be  five-fortieths  of  $12,000, 
the  amount  of  the  loss,  and  as  this  is  $1,500,  we 
know  the  Continental  is  not  being  neglected. 

I  have  applied  the  rule  made  by  the  court  in  the 
Armour  case  to  each  of  the  two  statements,  appor- 
tioned under  an  80  and  a  100  per  cent,  co-insurance 
clause.  I  made  the  apportionment  and  contribution 
in  each  case  as  I  think  is  right  and  legal,  and  then  I 
made  the  apportionment  and  contribution  according 
to  the  rule  of  the  court  in  the  Armour  case.  If  you 
have  carefully  read  the  different  apportionments  and 
noted  the  points  made  in  them,  you  are  prepared  to 
rcnsider  the  Armour  case. 

I  will  give  you  a  copy  of  this  case,  and  will  then 
try  to  explain  so  that  j^ou  can  understand  my  objec- 
tion to  it. 

Statement  of  Facts. 

"Respondent  had  insurance  upon  certain  of  its 
property  as  follows:  A  policy  issued  by  the  Phenix 
Insurance  Company  of  Brooklyn  indemnifying  re- 
spondent against  loss  or  damage  by  fire,  to  an  amount 
not  exceeding  the  actual  cash  value  of  the  property 
described  in  the  policy  at  the  time  of  loss,  and  in  no 
event  to  exceed  $3,000.  The  policy  contained,  among 
others,  the  following  provisions: 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     97 

"It  is  a  part  of  the  consideration  of  this  policy, 
and  the  basis  upon  which  the  rate  of  premium  is 
fixed,  that  the  assured  shall  maintain  insurance  on 
the  property  covered  by  each  item  of  this  policy  to 
the  extent  of  at  least  80  per  cent,  of  the  actual  cash 
value  thereof,  and  that,  failing  to  do  so,  the  assured 
shall  be  an  insurer  to  the  extent  of  such  deficit,  and 
to  that  extent  shall  bear  their  proportion  of  any  loss. 
*  *  *  In  case  of  other  insurance  upon  the  property 
herein  described,  whether  made  prior  or  subsequent 
to  the  date  of  this  policy,  whether  valid  or  not,  the 
assured  shall  be  entitled  to  recover  of  this  company 
no  greater  proportion  of  the  loss  sustained  than  the 
sum  hereby  insured  bears  to  the  whole  amount  of 
insurance  thereon. 

"A  policy  issued  by  the  Reading  Fire  Insurance 
Company  of  Reading,  indemnifying  the  assured 
against  all  direct  loss  or  damage  by  fire  to  an  amount 
not  exceeding  $1,000.  Said  policy  contained  the  fol- 
lowing clause: 

"  'Other  insurance  permitted.  This  company  shall 
not  be  liable  under  this  policy  for  a  greater  propor- 
tion of  any  loss  on  the  described  property  *  *  *  than 
the  amount  hereby  insured  shall  bear  to  the  whole 
insurance,  whether  valid  or  not,  or  by  solvent  or  in- 
solvent insurers,  covering  such  property.* 

"A  policy  issued  by  the  Knoxville  Fire  Insurance 
Company  of  Knoxville,  Tenn.,  insuring  respondent 
against  loss  or  damage  by  fire  to  the  amount  of 
$1,000.     Said  policy  contained  the  following  clause: 

"  *In  no  case  shall  the  claim  be  for  a  greater  sum 
than  the  actual  damage  to,  or  the  cash  value  of,  the 
property  at  the  time  of  the  fire,  nor  shall  the  assured 
be  entitled  to  recover  of  this  company  any  greater 
portion  of  the  loss  or  damage  than  the  amount  hereby 
insured  bears  to  the  whole  insurance  on  said  prop- 
erty, whether  such  insurance  be  by  specific  or  by 
general  or  floating  policies,  and  without  reference  to 
the  solvency  or  liability  of  other  insurers.' 

''While  said  policies  were  in  force  the  property 
insured  was  damaged  by  fire  to  the  amount  of  $2,200, 
and  at  said  time  the  actual  cash  value  of  the  property 
covered  by  said  several  policies  was  $10,000,  and 
there  was  no  other  insurance  than  that  above 
specified. 


98  THE)  APPORTIONJVftENT  OF  LOSS  AND 

Decision. 

It  is  thus  seen  that  the  agreement  with  the  Phenix 
Company  was  that  it  would  insure  plaintiff's  prop- 
erty to  the  amount  of  $3,000,  provided  plaintiff  should 
carry  $5,000  more  insurance  elsewhere,  and  thus  carry 
a  total  insurance  of  $8,000.  Had  these  conditions 
been  carried  out,  the  Phenix  Company  would  have 
been  bound  to  pay  three-eighths  of  the  actual  loss, 
$2,200,  and  the  other  companies  the  remaining  five- 
eighths.  But  plaintiff  failed  to  secure  the  $5,000 
additional  insurance  necessary  to  make  the  total 
amount  $8,000,  but  only  succeeded  in  placing  $2,000 
of  the  required  $5,000.  Now  the  question  is,  under 
these  altered  conditions,  for  how  much  were  the 
plaintiffs  actually  insured  in  the  Phenix  Company; 
and  what  was  the  whole  insurance?  If  the  Phenix 
Company  was  to  insure  $3,000  of  the  risk  in  case 
the  ether  companies  took  $5,000,  then  when  the  latter 
only  took  $2,000  it  is  plain  that  the  Phenix  Company 
only  assumed  such  a  proportion  to  the  $2,000  actually 
taken  by  the  other  companies  as  $3,000,  the  sum  the 
Phenix  Company  originally  agreed  to  take  (upon  the 
conditions  above  stated)  bears  to  the  $5,000,  the 
amount  plaintiffs  agreed  to  place  with  the  other  com- 
panies. The  rest  is  simply  a  question  of  mathemat- 
ics. The  problem  worked  out  by  the  old  'rule  of 
three'  shows  the  amount  to  be  $1,200.  The  total 
amount  of  insurance,  therefore,  was  $3,200,  of  which 
the  Phenix  carried  three-eighths,  or  $1,200,  and  each 
of  the  other  companies  five-sixteenths,  $1,000,  and  in 
such  proportion  the  actual  loss  should  be  apportioned 
among  the  three  companies — the  Phenix,  three- 
eighths,  or  $825,  and  the  Reading  and  the  Knoxville 
companies  $687  each." 

Armour  Packing  Company  vs.  Reading  Fire  Insur- 
ance Company,  57  Mo.  App.  215. 

The  rule  of  this  case  gives  the  following: 

Multiply  $3,000,  the  amount  of  insurance  with  the 
80  per  cent,  co-insurance  clause,  by  $2,000,  the  amount 
of  insurance  carried  without  the  co-insurance  clause, 
gives  $6,000,000,  which,  divided  by  $5,000,  the  amount 
of  additional  insurance  the  assured  agreed  to  carry, 
and  you  get  $1,200.  We  now  have  $1,200  for  the 
Phenix  to  contribute  from,  with  the  $2,000  other 
insurance,  to  pay  $2,200. 

The  apportionment  and  contribution  in  this  case 
was  made  with  the  total  insurance  and  maximum 
contributive  liability  of  the  Phenix  as  $1,200. 


CONTRIBUTION  OF  COMPOUND  INSURANCE.     99 

Apportionment  and  Contribution. 

Phenix  insures    ' $1,200     Pays  $825.00 

Knoxville    insures    1,000     Pays    687.50 

Reading   insures    1,000     Pays    687.50 


Total  loss  paid    $2,200.00 

There  are  two  reasons  why  I  consider  this  decision 
wrong: 

First.  The  rule  made  by  the  court  is  based  on  an 
improper  and  a  very  unreasonable  construction  of  the 
contracts.  In  one  policy,  we  have  as  a  part  of  the 
contract  an  80  per  cent,  co-insurance  clause.  The 
liability  of  two  of  the  companies  is  fixed  by  the  pro 
rata  contribution  clause. 

Second.  The  rule  gives  the  assured  the  full 
amount  of  his  loss,  without  violating  the  conditions 
or  restricting  the  application  of  the  80  per  cent,  co- 
insurance clause,  if  the  loss  does  not  exceed  the 
amount  of  insurance  fixed  by  the  rule  for  the  policy 
with  the  80  per  cent,  co-insurance  clause,  plus  the 
insurance  without  the  co-insurance.  If  the  loss  ex- 
ceeds this  amount  the  rule  restricts  the  application 
of  the  80  per  cent,  co-insurance  clause  and  violates 
the  most  important  condition  of  the  clause. 

I  can  not  agree  with  the  statement  made  by  the 
court  in  this  case  that  the  Phenix  only  insured  $1,- 
200,  and  that  this  $1,200  is  the  amount  of  insurance 
that  the  Phenix  carried — though  its  policy  was  for 
$3,000 — because  of  the  80  per  cent,  co-insurance 
clause.  » The  co-insurance  clause  is  not  a  clause  like 
the  average  clause — distribution  form,  which  fixes  a 
maximum  limit  of  insurance  and  contributive  liabil- 
ity, but  it  is  a  clause  which  limits  the  loss  liability. 

In  this  case  the  Phenix  policy  was  for  $3,000.  The 
value  was  $10,000,  and  the  loss  was  $2,200.  The  loss 
liability  of  the  Phenix  was  three-eighths  of  $2,200, 
which  was  $825.  The  insurance  carried  by  the  Phe- 
nix was  the  same  after  the  fire  as  before,  and  that 
was  $3,000. 

The  court  says:  "It  is  thus  seen  that  the  agree- 
ment with  the  Phenix  Company  was  that  it  would  in- 
sure plaintiff's  property  to  the  amount  of  $3,000,  pro- 
vided plaintiff  would  carry  $5,000  more  insurance 
elsewhere,  and  thus  carry  a  total  insurance  of  $8,000." 

This  statement  of  the  court  is  not  correct.  The 
amount  of  the  insurance  carried  by  the  Phenix  did 
not  depend  on  anything  but  the  plain  and  simple 
statement  in  the  policy,  that  in  consideration  of  so 


100  THE  APPORTIONMENT  OP  LOSS  AND 

much  money  to  it  paid,  it  insured  somebody  against 
all  direct  loss  or  damage  by  fire  to  an  amount  not 
exceeding  a  certain  number  of  dollars. 

There  is  a  condition  in  the  co-insurance  clause 
which  reads:  "*  *  and  that,  failing  so  to  do,  the 
assured  shall  be  an  insurer  to  the  extent  of  such 
deficit,  and  to  that  extent  shall  bear  their  proportion 
of  any  loss.  *  *  *"  There  is  no  agreement,  here, 
that  under  certain  conditions  the  amount  of  the 
Phenix  policy  could  legally  be  changed  from  $3,000 
to  $1,200.  The  co-insurance  clause  provides  a  result 
when  the  assured  fails  to  carry  an  amount  of  insur- 
ance equal  to  80  per  cent,  of  the  sound  value,  and 
that  is,  "*  *  *  *  and  that  failing  so  to  do,  the  insured 
shall  be  an  insurer  to^  the  extent  of  such  deficit,  and 
to  that  extent  shall  bear  their  proportion  of  any 
loss.  *  *" 

If  there  had  been  a  clause  on  the  Phenix  policy 
reading:  "The  liability  of  this  company  is  hereby 
limited  to  such  a  proportion  of  the  loss  as  the 
amount  insured  by  this  policy  bears  to  80  per  cent, 
of  the  sound  value  of  the  property  described  in  this 
policy"  there  would  be  no  doubt  but  that  it  was 
simply  a  limitation  of  loss  clause.  A  clause  which 
fixes  the  liability  of  the  company,  independently  of 
any  other  insurance  or  the  pro  rata  contribution 
clause,  as  a  co-insurance  clause  does,  is  a  limitation 
of  loss  liability,  and  nothing  more.  In  this  case 
there  were  two  conditions  of  the  policies  to  be  con- 
strued. One  was  the  80  per  cent,  co-insurance  clause, 
and  the  other  was  the  pro  rata  contribution  clause. 
These  clauses  are  not  complicated.  They  are  not 
susceptible  of  two  constructions  which  would  give  a  • 
court  authority  to  apply  the  construction  most  favor- 
able to  the  assured. 

In  this  case  the  liability  of  the  Phenix  was  limited 
by  a  special  contract  to  three-eighths  of  the  loss. 
The  other  companies  did  not  have  80  per  cent,  co- 
insurance clauses  on  their  policies,  and  therefore 
are  not  entitled  to  any  of  the  benefits  it  provides. 

The  policy  (see  lines  98,  99  and  100)  reads:"  *  *  * 
and  the  extent  of  the  application  of  the  insurance 
under  this  policy,  or  of  the  contribution  to  be  made 
by  this  company,  in  case  of  loss,  may  be  provided 
for  by  agreement  or  condition  written  hereon,  or 
attached  or  appended  hereto,  *  *  *" 

Under  this  clause  of  the  policy  any  company  may 
limit  the  application  of  the  insurance,  or  limit  its 
contributive  liability,  but  the  benefits  of  any  clause 


CONTRIBUTION  OF  COMPOUNE?  I^STSURANCE.  101 

written  on — attached  or  appended  tO;-a  policy  belong: 
only  to  the  company  which  issued  tie  policy. 

The  liability  of  the  Knoxville  and  Reading  was  not 
limited  by  any  special  contract  attached  to  their 
policies,  but  their  liability  was  fixed  by  the  pro  rata 
contribution  clause,  which  is  a  part  of  the  policy. 

.  PRO  RATA  CONTRIBUTION  CLAUSE. 

This  company  shall  not  be  liable  under  this  policy 
for  a  greater  proportion  of  any  loss  on  the  described 
property  *  *  *  than  the  amount  hereby  insured  shall 
bear  to  the  whole  insurance,  whether  valid  or  not, 
or  by  solvent  or  insolvent  insurers,  covering  such 
property. 

This  clause  limits  the  liability  of  the  Knoxville 
and  Reading  with  as  much  effectiveness  as  the  80 
per  cent,  co-insurance  clause  limits  that  of  the  Phe- 
nix.  The  court  has  no  right  to  ignore  either  condi- 
tion in  this  case,  unless  the  statutes  of  the  state 
makes  one  or  the  other,  or  both,  void.  There  is  no 
arbitrary  apportionment  of  compound  insurance,  be- 
cause there  was  no  compound  insurance. 

In  the  case  of  Page  Bros.  vs.  Sun  Fire  Office,  the 
court  made  the  following  statements  regarding  the 
insurance  contract:  "It  is  not  our  province  to  make 
contracts  for  the  parties  to  this  suit,  or  to  modify 
those  which  they  have  themselves  deliberately  made, 
because  it  appears  to  us  that  they  might  have  made 
those  that  would  have  been  more  equitable  or  more 
advantageous.  They  have  made  a  contract  them- 
selves which  fixes  the  amount  of  the  liability  of  the 
defendant  for  this  loss.  This  action  is  founded  on 
that  contract,  and  it  is  the  sole  measure  of  the  de- 
fendant's liability." 

Page  Bros.  vs.  Sun  Fire  Office,  25  Ins.  Law  Jour- 
nal 865. 

This  statement  of  the  court  is  certainly  logical, 
and  I  believe  the  motive  which  prompted  it  should 
govern  and  control  us  when  considering  the  Armour 
case,  or  any  similar  case. 

The  rule  made  by  the  court  in  the  Armour  case 
has  been  given  and  fully  explained  herein.  As  I  wish 
to  call  your  attention  to  it  for  the  purpose  of  further 
criticising  it,  I  will  repeat  it. 

Multiply  the  amount  of  insurance  with  the  80  per 
cent,  co-insurance  clause  by  the  amount  of  insurance 
carried  without  the  co-insurance  clause,  and  divide 
the  product  by  the  amount  of  additional  insurance 


102       ^rH:Bj : appjdrtionment  of  loss  and 

the  SKseured  ap:reed  to-  carry,  and  the  quotient  will  be 
the  amount  of  insurance  carried  by  the  company  with 
the  co-insurance  clause. 

The  one  point  that  is  fatal  to  this  rule  is  that  the 
loss  does  not  enter  into  the  problem,  when  the  rule 
is  applied,  to  determine  the  specific  insurance. 

The  loss  in  the  Armour  case  was  $2,200,  and  this 
rule  made  the  total  insurance  $3,200.  If,  instead  of 
having  a  loss  of  $2,200,  there  had  been  a  loss  of 
$3,200  the  assured  would  receive  full  indemnity  un- 
der the  application  of  this  rule.  The  Phenix  would 
pay  $1,200,  which  is  three-eighths  of  $3,200. 

I  will  use  the  facts  in  the  Armour  case,  except 
that  I  will  consider  the  loss  $4,800,  to  explain  in 
detail  my  second  objection  to  this  decision. 

Statement. 

Phenix— insures  $3,000. 
Knoxville — insures  $1,000. 
Reading — insures  1,000. 

The  loss  is  $4,800,  and  the  Phenix  policy  has  an  80 
per  cent,  co-insurance  clause.  The  other  policies  have 
no  limitation  clauses  attached.    Sound  value,  $10,000. 

Apportionment  and  Contribution. 

Phenix  insures    $3,000  Pays  $1,800 

Knoxville    insures    1,000  Pays       600 

Reading   insures    1,000  Pays       600 

Assured  insures    3,000  Pays    1,800 

Total  loss  paid $4,800 

The  liability  of  the  Phenix  is  fixed  at  three-eighths 
of  the  loss,  but  not  exceeding  the  amount  named  in 
the  policy.  As  three-eighths  of  $4,800  is  $1,800,  we 
know  the  Phenix  is  contributing  its  proportion. 

I  will  make  the  apportionment  and  contribution  to 
determine  the  liability  of  the  Knoxville  and  Reading. 

Apportionment  and  Contribution. 

Phenix  insures    $3,000     Pays  $2,880 

Knoxville  insures    1,000    Pays      960 

Reading   insures    1,000     Pays       960 

Total  loss  paid   $4,800 

In  this  contribution,  where  we  ignore  the  limita- 
tion clause  in  the  Phenix  policy,  the  Phenix  is  made 
to  pay  $2,880,  but  as  its  liability  is  limited  to  $1,800, 
it  can  not  be  made  to  pay  more. 


CONTRJBUTION  OP  COMPOUND  INSURANCE.  103 

Phenix  pays    $1,800 

Knoxville  pays 960 

Reading  pays 960 

Total  loss  paid    $3,720 

Each  company  has  fulfilled  its  contract  obligations 
to  the  assured,  and  yet  the  assured  is  only  receiving 
$3,720  on  a  loss  of  $4,800,  with  $5,000  insurance. 

The  rule  which  the  court  applied  in  the  Armour 
case  fixed  the  insurance  of  the  Phenix  at  $1,200.  If 
the  same  rule  were  applied  in  this  case,  we  would 
not  make  any  change  in  the  amount  of  insurance 
carried  by  the  Phenix.  We  would  have,  then,  $3,200 
of  insurance  and  a  $4,800  loss.  It  must  be  evident 
to  you  that  this  decision  is  not  based  on  a  proper 
construction  of  the  contracts,  and  that  it  is  a  very 
incorrect  and  improper  opinion. 

If  we  follow  the  rule  made  by  the  court  in  the 
Armour  case,  the  Phenix  would  insure  only  $1,200, 
the  Knoxville  $1,000,  and  the  Reading  $1,000.  By 
the  terms  of  the  Phenix  policy  its  liability  is  three- 
eighths  of  $4,800,  the  amount  of  the  loss,  which  is 
$1,800,  but  the  court,  if  it  applied  the  rule  made  in 
the  Armour  case,  would  say  as  it  insured  only  $1,- 
200  it  can  not  pay  $1,800.  When  the  loss  in  this 
case  exceeds  $3,200,  the  total  insurance  fixed  by  the 
court,  the  rule  of  the  court  is  in  conflict  with  the  80 
per  cent,  co-insurance  clause.  A  rule  which  is  appli- 
cable when  it  involves  a  $3,000  policy,  only  when  the 
loss  does  not  exceed  $3,200,  which  makes  the  total 
insurance  and  contributive  liability  of  a  $3,000  pol- 
icy $1,200,  and  which,  if  the  loss  were  $8,000  or  more, 
would  be  liable  for  the  full  amount  of  the  policy,  is, 
it  seems  to  me,  a  very  bad  legal  proposition. 

I  am  thoroughly  satisfied,  after  a  careful  investi- 
gation of  the  Armour  case,  that  the  construction  of 
the  80  per  cent,  co-insurance  clause  made  by  the 
court  is  radically  wrong.  I  was  favorably  impressed 
with  the  position  taken  by  the  court  when  I  first 
examined  the  decision,  but  on  a  second  and  more 
careful  examination  of  it  I  am  convinced  the  decision 
is  incorrect.  The  apportionment  and  contribution  in 
the  Armour  case  should  be  as  follows: 

Apportionment  and  Contribution. 

Phenix   insures    $3,000     Pays  $825 

Knoxville  insures    1,000     Pays  275 

Reading  insures    1,000     Pays  275 

Assured   insures    3,000     Pays  825 

Total  loss  paid    $2,200 

/ 


104  THE  APPORTIONMENT  OF  LOSS  AND      ' 

This  contribution  fixes  the  liability  of  the  Phenix. 
To  get  the  amount  of  loss  to  be  paid  by  the  other 
companies,  we  must  make  another  apportionment, 
and  treat  the  policies  as  if  none  of  them  had  a  co- 
insurance clause. 

Apportionment  and  Contribution. 

Phenix .  insures   $3,000     Pays  $1,320 

Knoxviile  insures    1,000     Pays       440 

Reading   insures    1,000     Pays       440 

Total  loss  paid $2,200 

This  contribution  makes  the  liability  of  the  Knox- 
viile and  Reading  $440  each. 

Phenix  pays    .- $825 

Knoxviile  pays   440 

Reading  pays    440 

Total  loss  paid   $1,705 

The  assured  receives  $1,7^)5  when  he  has  an  insur- 
ance of  $5,000,  with  a  loss  of  $2,200.  In  these  appor- 
tionments, each  company  has  contributed  its  full  pro- 
portion, as  provided  by  its  contract.  The  assured, 
however,  loses  $495.  The  courts  have  no  right  or 
authority  to  change  these  contracts  made  by  the  as- 
sured and  company. 

Since  the  above  was  written  this  question  has  been 
before  the  courts  of  last  resort  in  the  states  of  New 
York  and  Wisconsin,  and  the  rule  which  I  have 
herein  favored  has  been  approved.  The  two  decisions 
are  given  in  full  herein,  and  are  as  follows: 

Farmers'  Feed  Co.  of  New  Jersey  vs.  Scottish  Union 
&  Nat.  Ins.  Co.  of  Edinburgh. 

(Court  of  Appeals  of  New  York,  Jan.  13,  1903.) 

1.  A  fire  insurance  policy  provided  that  the  com- 
pany should  not  be  liable  for  a  greater  portion  of  any 
loss  than  the  amount  insured  by  its  policy  should 
bear  to  the  "whole  insurance"  on  the  policy.  Held, 
That  the  words  "whole  Insurance"  meant  the  face 
value  of  the  policy,  together  with  the  face  value  of 
all  other  policies  issued  on  the  same  property,  and 
in  apportioning  a  loss  all  other  insurance  is  to  be 
included,  whether  made  by  another  company  or  by  a 
contract  between  it  and  the  insured,  under  which,  on 
a  partial  loss,  each  stands  part  as  a  co-insurer. 

2.  An  insured  procured  policies  on  the  same  prop- 
erty in  other  companies,  providing  for  the  payment 


CONTRIBUTION  OP  COMPOUND  INSURANCE.  105 

of  not  exceeding  a  specified  sum  in  case  of  total  loss, 
or  in  case  of  partial  loss  where  the  insurance 
amounted  to  80  per  cent,  of  the  cash  value  of  the 
property,  the  insured  agreeing  that,  if  both  classes 
and  insurance  are  each  less  than  80  per  cent.,  to 
take  less  than  the  amount  of  his  loss,  if  a  loss  occurs, 
and  the  loss  and  insurance  are  each  less  than  80  per 
cent.,  the  whole  amount  of  insurance  is  not  the 
amount  of  the  actual  liability  of  such  companies  un- 
der the  circumstances,  but  is  the  largest  sum  which, 
under  any  circumstances,  they  can  be  compelled  to 
pay,  the  insured  being  a  co-insurer  for  the  difference 
between  the  face  value  of  the  policies  and  the  amount 
of  the  actual  liability  of  the  insured ;  and,  though  the 
total  insurance  is  greater  than  the  actual  loss,  he  is 
not  entitled  to  recover  the  whole  of  such  loss,  as  the 
amount  he  agreed  to  bear  must  be  Included  in  appor- 
tioning the  loss. 

3.  Defendant  insured  plaintiff's  property  to  a  cer- 
tain amount.  The  policy  contained  the  usual  appor- 
tionment clause.  Thereafter  plaintiff  procured  addi- 
tional insurance.  Each  of  the  policies  issued,  in 
addition  to  the  apportionment  clause,  contained  a 
percentage  co-insurance  clause,  providing  that  in 
event  of  loss  the  insurer  should  be  liable  for  no 
greater  proportion  thereof  than  the  sum  insured 
bears  to  80  per  cent,  of  the  cash  value  of  the  prop- 
erty, nor  more  than  the  proportion  which  the  policy 
bore  to  the  whole  insurance.  Held,  That  the  defend- 
ant insurance  company's  liability  is  to  be  determined 
by  the  amount  of  the  face  insurance  of  its  policy, 
divided  by  the  amount  of  the  total  insurance,  and 
multiplied  by  the  amount  of  the  loss,  and  not  by  the 
amount  of  the  face  insurance  of  its  policy  divided  by 
the  sum  of  the  amount  of  its  policy  and  the  actual 
value  of  the  other  insurance  and  multiplied  by  the 
amount  of  the  loss. 

Appeal  from  the  Supreme  Court,  Appellate  Divi- 
sion, First  Department. 

Action  by  the  Farmers'  Feed  Company  of  New  Jer- 
sey against  the  Scottish  Union  &  National  Insurance 
Company  of  Edinburgh.  From  a  judgment  of  the 
Appellate  Division  (72  N.  Y.  Supp.  732)  affirming  a 
judgment  for  plaintiff,  defendant  appeals.     Reversed. 

Michael  H.  Cardozo  and  Edgar  J.  Nathan,  for  ap- 
pellant. Martin  Paskusz,  Henry  L.  Cohen  and  Wil- 
liam S.  Gordon,  for  respondent. 

VANN,  J.  This  controversy  was  submitted  upon 
an  agreed  statement  of  facts,  whicYi,  so  far  as  mate- 
rial to  the  appeal,  are  as  follows:     In  May,  1898,  the 


106  THE  APPORTIONMENT  OF  LOSS  AND 


defendant,  by  a  policy  of  the  standard  form,  insured 
certain  buildings  belonging  to  the  plaintiff  in  the 
city  of  New  York  against  loss  by  fire  for  the  term  of 
three  years  from  the  23d  of  May,  1898,  "to  an  amount 
not  exceeding  $60,000."  On  the  14th  of  June,  1900, 
such  insurance  to  the  amount  of  $17,500  was  can- 
celled by  mutual  consent,  leaving  a  balance  of  $42,500 
still  in  force.  The  policy  contained  an  apportionment 
clause,  which  provided  that  "this  company  shall  not 
be  liable  under  this  policy  for  a  greater  proportion 
of  any  loss  on  the  described  property  *  *  *  than  the 
amount  hereby  insured  shall  bear  to  the  whole  in- 
surance, whether  valid  or  not,  or  by  solvent  or  in- 
solvent insurers,  covering  such  property,  *  *  *"  On 
the  5th  of  June,  1900,  the  plaintiff  procured  other 
insurance  on  the  same  property  "to  an  amount  not 
exceeding  $5,000"  in  each  of  the  following  companies: 
The  Springfield  Fire  and  Marine  Insurance  Company, 
the  Providence-Washington  Insurance  Company,  and 
the  Westchester  Fire  Insurance  Company,  and  "to 
an  amount  not  exceeding  $2,500"  in  the  Insurance 
Company  of  the  State  of  Pennsylvania;  making  $17,- 
500  as  the  maximum  amount  for  which  these  four 
companies  could,  in  any  event,  become  liable.  Each 
of  these  policies  contained  a  paragraph  headed,  "Per- 
centage Co-Insurance  Clause,"  of  which  the  follow- 
ing is  a  copy:  "In  consideration  of  the  premium  for 
which  this  policy  is  issued  it  is  expressly  stipulated 
that  in  the  event  of  loss  this  company  shall  be  liable 
for  no  greater  proportion  thereof  than  the  sum 
hereby  insured  bears  to  80  per  cent,  of  the  cash  value 
of  the  pro])erty  described  herein  at  the  time  when 
such  loss  shall  happen,  nor  more  than  the  proportion 
which  this  policy  bears  to  the  total  insurance."  On 
the  1st  of  July,  1900,  a  fire  occurred,  by  which  the 
property  insured,  the  cash  value  of  which  was  $124,- 
600,  was  damaged  to  the  amount  of  $45,321.18,  as  as- 
certained by  an  appraisal  duly  had.  The  plaintiff 
claims  that  the  amount  due  from  the  defendant  under 
its  policy  "by  reason  of  the  fire  loss"  was  $38,177.26, 
while  the  defendant  claims  that  such  amount  was  but 
$32,102.50,  which  it  has  paid  to  the  plaintiff  under 
an  agreement  that  such  payment  should  be  without 
prejudice.  The  Anpellate  Division  rendered  judg- 
ment in  favor  of  the  plaintiff  for  the  difference,  be- 
tween these  sums,  amounting  to  $6,074.76,  with  inter- 
est thereon  from  November  28,  1900. 

The  decision  of  the  controversy  turns  on  the  mean- 
ing of  the  words  "whole  insurance,"  as  used  in  the 
apportionment  clause   of   the   defendant's   policy.     It 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  lOT 

was  there  provided  that  the  defendant  should  not  be 
liable  for  a  greater  proportion  of  any  loss  than  the 
amount  insured  by  its  policy  should  bear  to  the 
whole  insurance  on  the  property.  There  is  no  dis- 
agreement as  to  the  amount  of  insurance  made  by 
the  defendant's  policy,  which  was  absolute,  but  the 
controversy  is  over  the  amount  made  by  the  four 
other  policies,  which  were  not  absolute,  owing  to  the 
co-insurance  clause.  The  defendant  claims  that  the 
whole  insurance  was  $60,000,  comprising  the  $42,500^ 
made  by  its  own  policy  and  $17,500,  or  the  greatest 
sum  for  which,  in  any  event,  the  four  companies 
could  become  liable,  and  that  the  plaintiff  was  a  co- 
insurer  to  the  extent  of  the  difference  between  the 
amount  for  which  they  are  liable  and  the  maximum 
amount  for  which  they  might  be  liable.  This  would 
reduce  the  indemnity  furnished  bj^  the  defendant's 
policy  from  $38,177.26,  the  amount  claimed  by  the 
plaintiff,  to  $32,102.50,  the  amount  paid  by  the  de- 
fendant. The  plaintiff  claims  and  the  Appellate  Divi- 
sion held,  that  under  the  circumstances  "the  amount 
of  insurance  effected  by  the  four  policies  is  identical 
with  the  amount  of  the  loss,  and  that  the  extent  of 
that  insurance  could  not  be  ascertained  until  after  a 
loss,  for  the  insurance  was  to  an  amount  not  exceed- 
ing a  stipulated  sum,  and  was,  therefore,  indefinite." 
This  conclusion  gives  no  force  to  the  apportionment 
clause  in  the  defendant's  policy  where  construed  in 
connection  with  the  co-insurance  clause  of  the  other 
policies.  Moreover,  all  five  insurance  policies,  in- 
cluding that  issued  by  the  defendant,  are  indefinite 
in  the  same  way,  for  they  all  make  insurance  to  an 
amount  not  exceeding  a  sum  named'  which  is  usually 
regarded  as  the  amount  of  insurance  effected.  The 
four  companies  stipulated  that  they  should  **be  liable 
for  no  greater  proportion"  of  the  loss,  which  was  $45,- 
321.18,  "than  the  sum  hereby  insured,"  or  $17,500, 
"bears  to  80  per  cent,  of  the  cash  value  of  the  prop- 
erty," which  was  $99,728.  Their  liability,  therefore, 
is  represented  by  the  following  proportion:  As  $99,- 
728  is  to  $17,500,  so  is  $45,321.18  to  the  amount  re- 
quired, or  $7,952.84.  Was  this  "the  whole  insurance'* 
effected  by  the  four  policies  containing  the  co-insur- 
ance clause?  If  so,  that  clause  has  no  effect  in  this 
case.  We  think  it  was  not,  for,  if  the  loss  had  been 
greater  the  amount  called  for  by  the  policy  would 
have  been  greater  also,  and  yet  it  could  not  have  ex- 
ceeded the  amount  of  the  insurance.  The  largest 
sum  which,  in  any  event,  can  be  collected  under  a 
policy,  and  not  the  smaller  sum  which  may  be  col- 


108  THE  APPORTIONMENT  OF  LOSS  AND 

lected  under  special  circumstances,  is  the  amount  of 
insurance  effected  by  the  policy.  There  is  no  limit 
to  the  possible  liability  under  the  four  policies,  ex- 
cept the  amount  that  the  companies  stipulated  it 
should  not  exceed,  aggregating  $17,500,  which  they 
would  have  been  obliged  to  pay  if  the  loss  had  been 
total.  Under  an  open  policy,  if  the  loss  is  less  than 
the  insurance,  the  former  measures  the  liability;  but 
if  the  loss  is  greater  than  the  insurance,  the  latter 
measures  the  liability ;  yet  in  either  event  the  amount 
of  insurance  is  the  same.  The  amount  of  insurance, 
therefore,  is  the  largest  sum  that  the  company,  under 
the  circumstances,  according  to  the  terms  of  their 
policy,  can  be  required  to  pay.  This  is  the  popular 
understanding,  as  well  as  the  legal  definition.  The 
test  is,  what  is  the  extent  of  the  indemnity  furnished 
under  any  possible  circumstances.  The  insurance  ef- 
fected by  the  four  policies  was  for  a  proportion  of 
the  cash  value  of  the  property  less  20  per  cent.,  which 
can  always  be  represented  by  a  fraction,  the  numera- 
tor being  unchangeable,  while  the  denominator  may 
vary  from  time  to  time.  The  numerator  is  the  high- 
est amount  which  the  companies  could  be  required  to 
pay,  while  the  denominator  is  80  per  cent,  of  the 
cash  value  of  the  property.  The  amount  of  the  insur- 
ance does  not  vary,  but  the  cash  value  of  the  prop- 
erty is  subject  to  change;  still  that  change  does  not 
reduce  the  amount  of  insurance.  The  fact  that  the 
owner  ran  his  own  risk  or  became  his  own  insurer 
as  to  the  20  per  cent,  of  the  cash  value  of  the  prop- 
erty, did  not  lessen  the  amount  of  insurance,  because, 
if  the  less  had  been  total,  the  whole  $17,500  would 
have  been  due  upon  the  four  policies.  Thus  the  ef- 
fect of  the  co-insurance  clause  is  that,  if  the  property 
is  insured  to  80  per  cent,  of  its  value  or  more,  in 
case  of  a  total  loss  the  whole  sum  insured  becomes 
due;  but  with  insurance  for  less  than  80  per  cent,  of 
the  value,  and  a  loss  also  of  less  than  80  per  cent., 
the  owner  becomes,  in  effect,  a  co-insurer  proportion- 
ately. He  could  have  procured  Insurance  to  80  per 
cent,  of  the  value,  but,  not  having  done  so,  he  be- 
came his  own  insurer  pro  tanto.  This  accords  with 
the  way  the  clause  is  characterized  in  the  policies, 
for  it  is  entitled  "Percentage  Co-Insurance  Clause," 
which  means  insurance  by  the  company  and  the 
owner,  depending  upon  the  percentage  or  proportion 
which  the  insurance  bears  to  the  value.  The  object 
is  through  lower  premiums  to  induce  the  owner  either 
to  take  out  insurance  to  80  per  cent,  of  value,  or  to 
become  a  co-insurer  with   less  risk  to  the  company 


CONTRIBUTION  OP  COMPOUND  INSURANCE.  109 

in  case  of  a  loss  falling  below  such  percentage  of 
value.  Where  either  the  loss  or  the  insurance  equals 
or  exceeds  80  per  cent,  of  value,  the  clause  has  no 
effect,  but  when  both  are  less  the  insured  and  the  in- 
surer bear  the  loss  in  certain  proportions.  The 
amount  of  insurance  is  not  the  variable  factor,  but 
the  amount  of  loss.  The  amount  of  insurance  is  at 
all  times  the  same,  but  when  the  loss  is  partial  the 
insurer  stands  only  a  part,  unless  the  insurance  is 
for  the  full  percentage,  whereas,  if  the  loss  is  total, 
the  insurer  stands  all,  not  exceeding  the  limit  stated 
in  the  policy.  That  limit  is  the  amount  of  insurance 
made  by  the  policy,  because  the  company  may  be  re- 
quired to  pay  to  that  extent.  The  words  of  the  co- 
insurance clause,  viz.,  ''the  sum  hereby  insured,"  in- 
dicate the  amount  of  insurance.  That  sum  is  fixed, 
definite,  and  always  the  same.  It  should  not  be  con- 
founded with  the  actual  liability  under  special  cir- 
cumstances, for  all  open  policies  are  necessarily  in- 
definite as  to  the  sum  to  be  paid  until  the  amount  of 
the  loss  is  known.  The  liability  can  never  exceed  the 
value  of  the  property,  but  the  insurance  may,  for  a 
house  worth  but  $1,000  may  be  insured  for  $2,000. 
If  thus  insured  by  two  companies,  one-half  in  each, 
and  the  property  was  wholly  destroyed  by  fire, 
neither  would  have  to  pay  $1,000,  t'le  amount  of  its 
policy,  but  only  $500,  the  amount  of  its  liability, 
owing  to  the  apportionment  clause.  This  would  be 
true  of  a  standard  policy,  even  if  one  of  the  compa- 
nies was  insolvent,  so  that  the  insured,  by  taking  out 
other  insurance,  may  reduce  his  security  while  in- 
tending to  increase  it.  In  the  case  before  us  the 
plaintiff,  by  procuring  the  four  policies,  reduced  his 
security  in  the  event  of  a  partial  loss,  but  increased 
it  in  the  event  of  a  total  loss.  For  the  purpose  of 
apportionment,  the  face  values  of  the  policies  should 
be  resorted  to,  regardless  of  the  cash  value  of  the 
property,  and  thus  the  whole  amount  of  insurance 
can  be  ascertained  by  a  simple  inspection  of  the  poli- 
cies. The  face  value  of  a  policy  is  not  reduced  by 
the  actual  value  of  the  property,  or  by  the  duty  of 
apportioning  the  loss,  or  by  the  effect  of  a  co-insur- 
ance clause  in  another  policy  on  the  same  property. 
The  amount  of  insurance  is  fixed  at  the  inception  of 
the  policy,  but  the  amount  of  liability  is  not  fixed 
until  a  loss  has  occurred.  The  one  depends  upon  the 
sum  for  which  the  policy  is  written,  but  the  other 
depends  upon  a  number  of  contingencies  which  may 
or  may  not  happen,  and  hence  can  not  be  known  in 
advance.     The   fact  that  they  are   known,   and   may 


110  THE  APPORTIONMENT  OF  LOSS  AND 

never  come  into  existence,  does  not  affect  the  amount 
of  the  policy.  The  question  involved  is  new,  and  we 
are  without  controlling  authorities  to  guide  us,  but 
the  discussion  of  a  subject  somewhat  related  in  a 
recent  case  has  aided  in  reaching  the  conclusion  an- 
nounced. Continental  Ins.  Co.  vs.  Aetna  Ins.  Co., 
138  N.  Y.  16,  21,  33  N.  E.  724. 

It  may  be  asked  why,  if  the  whole  insurance  was 
$60,000,  the  plaintiff  is  not  entitled  to  recover  his 
entire  loss,  which  was  but  $45,321.18;  and  the  an- 
swer is  that  he  agreed  in  a  certain  contingency  to 
stand  part  of  the  loss  himself.  He  accepted  four 
policies,  which  provided  for  the  payment  to  him  of 
not  exceeding  $17,500  in  case  of  a  total  loss;  or  in 
case  the  loss  was  partial,  and  his  insurance  amounted 
to  80  per  cent,  of  the  cash  value ;  buf  he  agreed  that, 
if  both  loss  and  insurance  were  each  less  than  the 
80  per  cent.,  to  take  less  than  the  amount  of  his  loss, 
and  thus  became  a  co-insurer  for  the  difference.  The 
defendant,  pursuant  to  its  apportionment  clause,  is 
entitled  to  the  benefit  of  all  other  insurance,  whether 
made  bj^  another  company  alone  or  by  a  contract 
between  another  company  and  the  insured,  by  which, 
in  case  of  partial  loss,  each  stands  part  as  a  co-insurer. 
We  think  that  the  "whole  insurance"  was  $60,000,  the 
face  value  of  all  the  policies,  and  that  the  judgment 
appealed  from  should,  therefore,  be  reversed,  and 
judgment  ordered  for  defendant  on  the  merits,  with 
costs. 

PARKER,  C.  J.,  and  GRAY,  O'BRIEN,  MARTIN, 
CULLEN,  and  WERNER,  J.  J.,  concur. 

Judgment  reversed. 

IMPORTANT   APPORTIONMENT   DECISION. 

Isaac  Stephenson  et  al.,  Exrs.,  etc.. 

Appellants, 

vs. 

Agricultural  Insurance  Company  of 

Watertown,  New  York,  et  al., 

Respondents. 

Appeals  from  the  Circuit  Court  for  Milwaukee 
County. 

Plaintiffs'  testator  took  out  insurance  on  a  build- 
ing situated  in  the  city  of  Milwaukee,  Wis.,  as  fol- 
lows: Agricultural  Insurance  Company  of  Water- 
town,  N.  Y.,  $5,000;  Liverpool  and  London  and  Globe 
Insurance  Company,  $5,000;   Continental  National  In- 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  Ill 

surance  Company,  $5,000;  Prussian  National  Insur- 
ance Company,  $2,500;  Northwestern  National  Insur- 
ance Company,  $5,000;  Milwaukee  Fire  Insurance 
Company,  $5,000,  and  the  Milwaukee  Mechanics'  In- 
surance Company,  $7,500,  the  policy  of  the  latter  com- 
pany, however,  containing  a  provision  requiring  in- 
surance to  be  kept  upon  the  property  to  the  amount 
of  80  per  cent,  of  the  actual  cash  value  thereof,  and 
providing  that  in  case  of  a  failure  so  to  do,  and  a 
fire  occurring,  the  liability  under  such  policy  should 
be  limited  to  the  amount  that  would  be  apportioned 
thereto  in  the  event  of  the  full  amount  of  insurance 
being  carried.  The  language  of  the  policy  in  regard 
to  the  matter  was  as  follows: 

"At  the  option  of  the  assured,  and  in  consideration 
of  the  reduced  rate  of  premium  charged  for  this  pol- 
icy, the  assured  hereby  agrees  to  maintain  insurance 
during  the  life  of  this  policy,  upon  the  property 
hereby  insured,  to  the  extent  of  eignty  (80)  per  cent, 
of  the  actual  cash  value  thereof,  and  it  is  mutually 
agreed  that  if,  at  the  time  of  the  fire,  the  whole 
amount  of  insurance  on  said  property  shall  be  less 
than  such  eighty  (80)  per  cent.,  this  company  shall, 
in  case  of  loss  or  damage  less  than  such  eighty  (80) 
per  cent.,  be  liable  for  only  such  portion  thereof  as 
the  amount  insured  by  this  policy  shall  bear  to  said 
eighty  (80)  per  cent,  of  such  actual  cash  value  of 
such  property." 

Other  than  that  stipulation,  all  ot  the  policies  were 
alike.  The  form  thereof  was  that  of  the  standard 
policy  of  this  state,  one  of  the  provisions  being,  in 
accordance  with  1941-58  R.  S.  1898,  as  follows: 

"This  company  shall  not  be  liable  under  this  policy 
for  a  greater  portion  of  any  loss  on  the  described 
property  or  for  loss  by  and  expense  of  removal  from 
premises  endangered  by  fire  than  the  amount  hereby 
insured  shall  bear  to  the  whole  insurance,  whether 
valid  or  not,  or  by  solvent  or  insolvent  insurers  cov- 
ering such  property,  and  the  extent  of  the  application 
of  the  insurance  under  this  policy  or  of  the  contribu- 
tion to  be  made  by  this  company  in  case  of  loss  may 
he  provided  for  by  agreement  or  condition  written 
hereon  or  attached  or  appended  hereto.  Liability  for 
reinsurance  shall  be  as  specifically  agreed  hereon." 

While  all  the  policies  were  in  force,  the  property 
insured  was  damaged  by  fire  to  the  amount  of  $14,- 
169.50.  The  actual  cash  value  thereof,  when  the  fire 
occurred,  was  $94,000.  Default  was  made  by  some  of 
the  companies  as  to  paying  their  respective  propor- 
tion   of    the    adjusted    loss.      Suits    were    thereupon 


112  THE  APPORTIONMENT  OF  LOSS  AND 

brought  against  them,  respectively,  as  follows: 
Against  the  Agricultural  Insurance  Company  for  $2,- 
319.33,  with  interest;  against  the  Liverpool  and  Lon- 
don and  Globe  Insurance  Company,  for  the  same 
amount;  against  the  Continental  Insurance  Company, 
for  a  like  amount;  against  the  Prussian  National  In- 
surance Company,  for  $1,159.66. 

The  only  issue  made  by  the  answers,  litigated  and 
required  to  be  reviewed  upon  these  appeals,  is  as  to 
whether  the  total  amount  of  the  insurance  on  the 
building  when  the  fire  occurred  was  $35,000  or  $30,- 
546.55.  In  the  complaint  the  latter  amount  was  al- 
leged to  be  correct,  while  in  each  of  the  answers  the 
former  was  insisted  upon.  Plaintiffs  claimed  that  the 
$7,500  policy,  so-called,  was  in  fact,  by  force  of  its 
limitation  clause,  reduced  in  proportion  to  the  amount 
of  the  deficiency  of  insurance  on  the  property  under 
the  80  per  cent,  clause  of  the  policy. 

Defendants  claimed  that  the  policy  should  be 
counted  at  its  face,  $7,500,  in  apportioning  the  loss. 
The  trial  court  decided  in  favor  of  the  latter  view, 
and  ordered  judgments  accordingly,  which  were  ren- 
dered, one  against  each  of  the  companies.  A  sepa- 
rate appeal  was  taken  from  each  of  such  judgments. 

Marshall,  J.:  This  appeal  calls  for  the  solution  of 
two  questions  concerning  the  construction  of  signifi- 
cant words  in  this  part  of  Section  1941-58,  R.  S.  1898: 

"This  company  shall  not  be  liable  under  this  policy 
for  a  greater  proportion  of  any  loss  on  the  described 
property  *  *  *  than  the  amount  hereby  insured  shall 
bear  to  the  whole  insurance,  whether  valid  or  not." 

These  are  the  questions:  1.  Do  the  words  ''amount 
hereby  insured"  refer  to  the  face  of  the  policy — the 
maximum  amount  of  risk  assured  under  any  or  all 
circumstances?  2.  Do  the  words  "whole  insurance" 
refer  to  the  aggregate  of  the  maximum  risks  assumed 
by  all  insurers  in  respect  to  the  property?  Affirma- 
tive answers  will  lead  to  an  affirmance  of  the  judg- 
ments. 

Courts  elsewhere  have  had  the  subject  before  us 
up  for  consideration  to  some  extent.  In  respondents* 
favor  we  are  referred  to  Armour  Packing  Co.  vs. 
Reading  F.  Ins.  Co.,  67  Mo.  App.  Cases,  215,  and 
Farmers'  F.  Co.  vs.  Scottish  Union  Nat.  Ins.  Co.  72 
N.  Y.  Supp.  752.  The  language  of  the  insurance  con- 
tracts was  the  same  substantially,  as  here.  In  the 
first  case  the  effect  of  a  provision  like  the  80  per 
cent,  clause  of  the  Milwaukee  Mechanics'  Insurance 
Company  policy,  as  regards  features  of  the  contract 
similar  to  those  of  our  standard  policy,  required  by 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  113 


Sec.  1941-58,  R.  S.  1898,  was  considered.  It  was  to  the 
effect  that  in  case  of  a  loss  the  part  apportioned  to  a 
particular  company  should  be  on  a  basis  of  there 
being  insurance  on  the  property  to  the  extent  of  80 
per  cent,  of  the  cash  value  thereof,  and  if  there  was 
not  that  amount  of  insurance  in  fact,  that  the  loss  as 
to  the  deficiency  should  fall  on  the  insured  as  a  co- 
insurer.  The  court,  in  reaching  a  conclusion,  seems 
to  have  ignored  the  plain  language  in  that  regard. 
It  held  that  the  liability  of  the  company  was  the 
amount  of  the  insurance  under  the  policy;  that  the 
amount  of  the  insurance  was  not  the  face  of  the  pol- 
icy, but  the  face  scaled  down  in  proportion  to  the 
failure  of  the  assured  to  comply  with  the  80  per  cent, 
clause;  that  the  reduced  amount  was  the  proper  sum 
to  be  considered  in  adding  up  the  "whole  insurance" 
and  in  apportioning  the  loss  between  the  several  com- 
panies concerned  so  as  to  give  the  assured  full  in- 
demnity for  his  loss  within  the  range  of  the  policies. 
That  cast  a  burden  on  some  of  the  companies  which 
the  assured  expressly  stipulated  to  bear  himself,  re- 
ceiving a  consideration  therefor  in  the  form  of  a  re- 
duction of  the  premium  paid.  In  the  second  case  the 
court  held  that  the  amount  of  insurance  was  synony- 
mous with  the  amount  of  the  loss,  and  the  latter 
synonymous  with  the  liability;  that  a  determination 
of  the  amount  of  the  insurance  necessarily  waited 
upon  the  adjustment  of  the  loss.  "It  might  not  be," 
said  the  court,  "the  maximum  amount  named  in  each 
of  the  policies.  How  much  insurance  was  effected  by 
each  policy  depended  upon  the  sound  value  of  the 
property  covered  at  the  time  of  the  loss,  diminished 
by  20  per  cent."  The  policy  contained  a  clause  simi- 
lar to  that  in  those  under  consideration  here,  and 
required  by  Sec.  1941-43,  R.  S.  1898,  fixing  the  amount 
of  the  insurance  at  a  sum  sufficient  to  cover  all  loss 
not  exceeding  a  specified  amount.  The  words  "and 
not  exceeding,"  etc.,  specifying  the  maximum  amount 
of  the  risk  assumed,  inclined  the  court  to  hold  that 
the  true  amount  of  the  insurance  was  determinable 
only  in  the  event  of  a  loss.  We  can  not  agree  with 
that  view.  It  seems  to  violate  the  plain  meaning  of 
the  language  of  the  policies.  We  will  endeavor  to 
show  that  such  is  the  case. 

In  that  part  of  the  policy  corresponding  to  Sec. 
1941-43  id.,  the  word  "loss"  is  used,  but  not  as  a  lim- 
itation upon  the  amount  of  the  insurance,  but  primar- 
ily as  a  limitation  upon  the  amount  of  the  liability. 
This  is  obvious,  since  payment  of  one  loss  does  not 
canrel    the    policy    unless    it    equals     the     maximum 


114  THE  APPORTIONMENT  OF  LOSS  AND 

amount  of  risk  assumed.  If  it  is  less,  it  is  only  a 
pro  tanto  satisfaction  of  the  policy.  The  company 
remains  liable  thereafter  to  be  called  upon  time  after 
time  during  the  policy  period,  the  policy  being  kept 
alive  by  compliance  with  its  provisions,  till  an  amount 
equal  to  the  face  thereof  shall  have  been  paid.  It 
must  follow  that  the  amount  of  insurance  effected  by 
a  policy  is  one  thing,  the  amount  of  the  loss  in  any 
particular  instance  another,  and  the  liability  to  pay 
on  account  thereof  another.  The  amount  of  the  in- 
surance is  the  maximum  amount  of  the  risk  assumed 
— the  face  of  the  policy;  the  amount  of  the  loss  is 
the  adjusted  damage  by  fire  to  the  property  covered 
by  the  policy;  the  amount  of  the  liability  as  to  any 
particular  loss  is  the  amount  of  the  adjusted  dam- 
ages properly  apportionable  to  the  policy. 

What  has  been  said  as  to  what  constitutes  the 
amount  of  the  insurance  under  that  part  of  the  stand- 
ard policy  as  regards  Sec.  1941-43,  R.  S.  1898,  applies 
to  that  part  embodying  Sec.  1941-58  id.  Note  the  plain 
distinction  in  the  latter  section  between  ''amount 
hereby  insured,"  or  "whole  insurance,"  and  ''loss": 
"This  company  shall  not  be  liable  under  this  policy 
for  a  greater  proportion  of  any  loss  *  *  *  than  the 
amount  hereby  insured  shall  bear  to  the  whole  insur- 
ance." To  say  that  the  terms  "liability,"  "loss"  and 
"amount  insured,"  or  "whole  insurance,"  are  synony- 
mous, or  that  the  amount  of  the  insurance  is  unde- 
terminable in  advance  of  loss,  is  well-nigh,  if  not 
quite,  absurd.  The  language  of  the  section  as  a  whole 
is  too  plain  to  admit  of  any  resort  to  rules  for  judi- 
cial construction  to  determine  its  meaning.  As  indi- 
cated, "loss"  refers  to  the  damages  of  the  assured 
measured  in  money;  "liable,"  or  liability,  to  the 
amount  of  such  loss  which  the  sufferer,  under  the 
insurance  contract,  may  recover  upon  the  policy,  and 
"amount  hereby  insured"  to  the  risk  assumed  under 
the  policy — the  amount  which,  regardless  of  any  loss 
paid,  remains  subject  to  be  drawn  upon  from  time  to 
time  to  satisfy  other  losses  till  it  shall  have  been 
wholly  exhausted. 

The  amount  insured  on  the  face  or  the  Milwaukee 
Mechanics'  Insurance  Company  policy  is  $7,500.  It 
was  not  competent  for  such  company  to  limit  its  lia- 
bility so  as  in  any  way  to  vary  the  insurance  con- 
tracts made  by  respondents.  We  are  unable  to  see 
any  evidence  in  its  policy  of  an  attempt  to  do  so, 
or  anything  out  of  harmony  with  the  conclusion  we 
have  come  to.  The  policy  contains  ttie  same  language 
as  the  other  policies  respecting  the  risk  assumed.    It 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  115 

was  limited  to  a  particular  sum,  $7,500,  coupled  with 
a  condition  requiring  the  assured  to  carry  insurance 
upon  the  property  to  the  amount  of  80  per  cent,  of 
the  cash  value  thereof  or  to  be  deemed  himself  an 
insurer  for  the  deficiency.  That  is  the  effect  of  the 
80  per  cent,  clause.  The  maximum  amount  of  the 
risk  was  $7,500.  The  amount  of  its  liability,  as  be- 
tween it  and  the  assured,  but  not  as  between  it  and 
the  other  companies,  was  affected  by  the  80  per  cent, 
clause.  The  language  of  the  policy  indicates  that  the 
contracting  parties  understood  the  result  of  a  failure 
by  the  assured  to  take  out  sufficient  insurance  to 
equal  80  per  cent,  of  the  cash  value  of  the  property 
would  not  be  a  reduction  of  the  amount  of  insurance 
affected  by  the  policy,  but  such  a  division  of  any  loss 
apportioned  to  $7,500  out  of  the  whole  insurance  be- 
tween the  company  and  the  assured  as  would  make 
him  bear  the  burden  that  would  otherwise  be  cast 
upon  it  by  his  failure  to  take  out  insurance  up  to  the 
limit  specified.  The  words  "amount  of  insurance" 
and  ''amount  insured"  are  used  in  the  80  per  cent, 
clause  in  a  way  to  clearly  indicate  that  they  refer  to 
the  maximum  risk  assumed,  the  $7,500.  Here  is  the 
language:  "If,  at  the  time  of  the  fire,  the  whole 
amount  of  insurance  on  said  property  shall  be  less 
than  80  per  cent,  this  company  shall,  in  case  of  loss 
or  damage  less  than  said  80  per  cent.,  be  liable  only 
for  such  portion  thereof  as  the  amount  insured  by 
this  policy  shall  bear,"  etc.  There  can  be  no  mistak- 
ing the  connection  between  the  significant  words  in 
that  clause  and  the  maximum  risk  assumed  by  the 
company  and  by  all  the  companies. 

There  is  abundance  of  authority  supporting  the 
conclusions  that  "amount  hereby  insured,"  and  simi- 
lar expressions  as  regards  a  particular  policy,  mean 
maximum  amount  of  risk  assumed;  that  "the  whole 
insurance,"  and  similar  expressions  as  to  any  given 
parcel  of  property  covered  by  several  policies  of  in- 
surance, with  or  without  a  limitation  of  liability 
clause  similar. to  the  one  in  the  Milwaukee  Mechan- 
ics' Insurance  Company  policy,  mean  the  aggregate 
maximum  risks  assumed  under  all  the  policies;  that 
such  a  limitation  of  liability  clause  in  a  policy  does 
not  operate  to  vary  the  terms  of  any  other  policy,  and 
that  the  effect  of  such  a  clause,  and  the  contractual 
purpose  thereof,  is  to  make  the  insured  a  co-insurer 
to  the  extent  that  he  fails  to  place  the  whole  insur- 
ance specified.  We  will  mention  in  the  main  only 
cases  cited  by  respondents'  counsel:  Oshkosh  Gas 
Light  Co.  vs.  Germania  Ins.  Co.,  71  Wis.  457;  L.  and 


116  THE3  APPORTIONMENT  OF  LOSS  AND 


L.  and  G.  Ins.  Co.  vs.  Verdier,  35  Mich.  395;  Page  vs. 
Sun  Ins.  Office,  74  Fed.  203;  Chesbrough  vs.  Home 
Ins.  Co.,  61  Mich.  333;  Haley  vs.  Dorchester  M.  F. 
Ins.  Co.,  12  Gray,  545;  East  Texas  F.  Ins.  Co.  vs. 
Coffee,  61  Tex.  287;  Good  vs.  Buckeye  M.  F.  Ins.  Co., 
43  Ohio  St.  394;  Bardwell  vs.  Conway  M.  F.  Ins.  Co., 
118  Mass.  465;  Christian  vs.  Niagara  F.  Ins.  Co.,  101 
Ala.  634.  In  the  last  case  cited  the  court  referred 
to  the  feature  of  insurance  contracts  making  the  as- 
sured a  co-insurer  as  reasonable,  and  one  that  should 
be  enforced  by  courts,  rather  than  avoid  by  any  at- 
tempt to  read  out  of  it  a  justification  for  a  different 
course  by  rules  of  judicial  construction.  In  Ches- 
brough vs.  Home  Ins.  Co.  there  was  a  limitation  of 
liability  clause,  similar  in  all  respects  to  the  one  in 
this  case,  and  the  court  treated  the  amount  of  insur- 
ance affected  by  the  policy,  in  apportioning  the  loss 
between  different  companies,  as  the  face  thereof;  but, 
as  between  such  company  and  the  assured,  held  that 
the  latter  should  bear,  as  a  co-insurer,  any  loss  not 
regularly  insured  against  by  reason  of  his  failure  to 
take  out  the  full  amount  of  insurance  agreed  upon. 

Our  attention  is  called  to  the  language  in  1943a, 
prohibiting  the  issuance  of  any  policy  containing  any 
provision  limiting  the  amount  to  be  paid  in  case  of 
loss  below  the  actual  cash  value  of  the  property,  if 
within  the  amount  of  insurance  for  which  premiums 
are  paid,  and  prohibiting  the  use  of  any  co-insurance 
clause  or  rider  except  under  certain  conditions  men- 
tioned. We  are  unable  to  see  how  such  section  ap- 
plies to  this  case.  The  policies  issued  by  respondents 
were  free  from  the  prohibited  features.  They  contain 
only  features  expressly  required  by  the  standard  pol- 
icy law.  The  circumstances  preventing  appellants 
from  obtaining  full  indemnity  was  the  Milwaukee 
Mechanics'  Insurance  Company  policy,  containing  a 
limitation  of  liability  clause  pursuant  to  1943a,  and 
the  assured's  election  to  exercise  the  option  therein 
stipulated  for  to  carry  a  part  of  the  insurance  him- 
self. 

The  claim  is  made  that  by  taking  the  policies  to- 
gether the  assured  was  entitled  to  full  indemnity, 
and  language  to  that  effect  is  quoted  from  Sherman 
vs.  Mad.  Mut.  Ins.  Co.,  39  Wis.  104.  This  part  of  the 
argument  of  appellants'  counsel  is  Infirm  in  this:  it 
fails  to  give  weight  to  the  fact  that  in  the  case  cited 
the  court  held  that  the  assured  was  entitled  to  full 
indemnity  because  that  was  what  he  paid  for  and 
did  not  stipulate  away.  Here  the  assured  did  stipu- 
late that  he  would  himself  bear  such  part  of  the  loss 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  117 

apportioned  to  $7,500  of  the  whole  insurance  as 
should  not  be  collectible  of  the  Milwaukee  Mechanics' 
Insurance  Company  by  reason  of  the  co-insurance 
clause  of  its  policy.  To  that  extent  he  stipulated 
away  the  right  to  full  indemnity  and  received  the 
consideration  therefor,  as  we  have  before  indicated. 
That  no  part  of  such  consideration  went  to  enrich  the 
respondents  makes  no  difference,  since  their  own  pre- 
mium rates  were  made  with  reference  to  the  clause 
of  their  policies  limiting  their  liability  to  such  pro- 
portion of  any  loss  as  the  amount  of  the  insurance 
taken  by  them,  respectively,  bore  to  the  whole  insur- 
ance on  the  property.  They  must  ve  neld  liable  ac- 
cording to  their  own  contracts,  and  no  further,  the 
same  as  was  held  in  Sherman  vs.  Madison  Mut.  Ins. 
Co.,  supra. 

It  follows  from  the  foregoing  that  the  questions 
suggested  that  the  opening  of  this  opinion  must  be 
answered  in  favor  of  respondents  and  the  judgments 
appealed  from  affirmed. 

By  the  court:     So  ordered. 

"RICE'S   RULE." 

The  following  communications  have  a  direct  or 
indirect  bearing  on  the  rule  for  apportionment  of 
non-concurrent  insurance,  known  as  "Rice's  Rule": 

AN  APPORTIONMENT  PROBLEM  ANALYSIS. 

An    Interesting    Exposition   of  an   Apportionment 

Problem,  by  Willis  O.  Robb. 

New  York,  November  19,  1903. 
Eugene  Gary,  Esq.,  Manager  German-American  Insur- 
ance Company,  Chicago,  111.: 

Dear  Sir — Your  letter  of  the  9th  mst.,  addressed  to 
President  Kremer,  of  the  German-American,  and  en- 
closing statement  of  facts  involved  in  a  disputed  ap- 
portionment which  your  own  and  other  offices  desire 
to  have  submitted  to  me  for  determination,  has  been 
forwarded  by  Mr.  Kremer. 

The  elements  of  the  problem  as  you  give  them  are 
as  follows: 

Specific 
Value.  Loss.     Insurance. 

Building  A  $5,200  $3,854  $3,000 

Building  B    5,070  3,380  2,000 


$10,270              $7,234  $5,000 

Buildings  A  and  B,  blanket  insurance 4,000 


Total  insurance   $9,000 


118  THE  APPORTIONMENT  OP  LOSS  AND 

You  say  nothing  about  co-insurance,  but  presuma- 
bly thie  policies  do  not  have  full  co-insurance  clauses, 
at  least. 

The  only  apportionment  for  double  non-concurrent 
cases  of  this  kind  that  the  strict  language  of  the  con- 
tribution clause  of  the  standard  policy  will  justify  is 
one  that  many  courts,  and  many  insurance  companies 
also,  hesitate  to  adopt  because  it  fails  to  indemnify 
the  insured  fully,  despite  the  excess  of  insurance  over 
loss.  But  the  contribution  clause  seems  to  me  to  be 
plain  in  its  bearing  on  this  problem,  and  under  it  the 
apportionment  in  the  case  you  have  submitted  would 
be  as  follows: 

$3,000   specific   insurance   on   A  pays   3-7    of 

$3,854,  loss  on  A,  or $1,651.71 

$2,000   specific   insurance   on   B    pays   2-6   of 

$3,380,  loss  on  B,  or ; 1,126.67 

$4,000  blanket  insurance   on  A  and  B   pays 

4-9  of  $7,234,  loss  on  A  and  B 3,215.11 

Total  recovery   $5,993.49 

Insured  loses 1,240.51 

Whole  loss    $7,240.00 

In  this  way,  and  in  this  way  only,  each  company 
will  pay  no  greater  proportion  of  the  loss  on  the 
property  it  covers  than  its  amount  constitutes  of 
the  whole  insurance  thereon.  And  that  is  the  clear 
limit  of  liability  fixed  by  the  contribution  clause. 

In  the  case  of  the  Farmers'  Feed  Co.  vs.  Scottish 
Union  and  National  Ins.  Co.,  reported  on  page  162, 
"Insurance  Law  Journal"  for  February,  1903,  a 
wholly  different  point  was  up  for  decision,  but  the 
court  of  Appeals  of  New  York,  in  deciding  it,  used 
language  that  seems  to  me  squarely  to  cover  this 
whole  problem  of  both  single  and  double  non-concur- 
rent apportionments — language  that  certainly  indi- 
cates a  recation  against  the  practice  of  violating  the 
plain  language  of  the  contribution  clause  for  the 
sake  of  relieving  the  policyholder  from  this  conse- 
quence of  a  blunder  that  is  almost  always  his  own  or 
his  broker's,  not  that  of  the  companies,  who  have 
warned  him  against  it  in  large  print  on  the  outside 
of  their  policies.    The  court  said: 

"The  decision  of  the  controversy  turns  on  the 
meaning  of  the  words  'whole  insurance'  as  used  in 
the  apportionment  clause  of  the  defendant's  policy. 
It  was  provided  that  the  defendant  should  not  be 
liable  for  a  greater  proportion  of  any  loss  than  the 


CONTRIBUTION  OP  COMPOUND  INSURANCE.  119 

amount  insured  by  its  policy  should  bear  to  the 
whole  insurance  on  the  property.  *  *  *  tj^^  plain- 
tiff claims  that  the  Appellate  Division  holds  that  un- 
der the  circumstances  the  amount  of  insurance  *  *  * 
could  not  be  ascertained  until  after  a  loss.  *  *  * 
This  conclusion  gives  no  force  to  the  apportion- 
ment clause  in  the  defendant's  policy.  *  *  *  tj^^ 
largest  sum  which  in  any  event  can  be  collected  un- 
der a  policy,  and  not  the '  smaller  sum  which  can 
be  collected  under  special  circumstances,  is  the 
amouiit  of  insurance  effected  by  the  policy.  *  *  * 
The  amount  of  insurance,  therefore,  is  the  largest 
sum  that  the  company  under  any  circumstances,  ac- 
cording to  the  terms  of  the  policy,  can  be  required 
to  pay.  *  *  *  We  think  that  the  'whole  insur- 
ance' was  $60,000,  the  face  value  of  the  policies. 
*  *  *  It  may  be  asked  why,  if  the  whole  insur- 
ance was  $60,000,  the  plaintiff  is  not  entitled  to  re- 
cover his  entire  loss,  which  was  but  $45,321.18,  and 
the  answer  is  that  he  agreed  in  a  certain  contingency 
to  stand  part  of  the  loss  himself." 

This  case  is,  on  its  face,  a  controlling  precedent 
only  for  apportionments  involving  some  policies  with 
and  some  without  a  co-insurance  clause,  which  was 
the  condition  actually  before  the  court.  But  to  me, 
at  least,  the  language  here  quoted  seems  perfectly  and 
unquestionably  applicable  to  the  familiar  problem 
of  double  non-concurrent  apportionments,  of  which 
the  case  you  have  referred  to  me  is  a  typical  instance. 
If,  therefore,  the  insured  were  a  party  to  his  submis- 
sion, and  there  were  no  binding  stipulations  to  the 
contrary,  I  should  not  hesitate  to  apportion  the  loss 
as  above,  believing  that  no  other  apportionment  will 
give  effect  to  the  plain  language  of  the  contribution 
clause.  But  as  the  insured  is  not  a  party  to  the  sub- 
mission in  this  case,  I  assume  that  the  companies  are 
disposed  to  waive  their  rights  to  the  apportionment 
above  indicated,  and  that  they  mean  to  pay,  among 
them,  the  whole  loss,  according  to  any  division  I  may 
recommend  for  that  purpose. 

Rules   Do   Not  Apply. 

I  may  as  well  say  at  once  that  none  of  the  many 
rules  offered  for  the  solution  of  this  modified  form 
of  the  problem,  either  by  the  numerous  courts  of  law 
or  by  the  still  more  numerous  lay  authorities  who 
have  dealt  with  it,  seems  to  me  to  be  capable  of  log- 
ical analysis  or  universal  application,  and  for  the 
reason   that   they   are   all   makeshifts   and    cowardly 


120  THE  APPORTIONMENT  OF  LOSS  AND 

substitutes  for  the  one  simple  and  literal  rule  pre- 
scribed by  the  policy  language,  and  already  applied 
above.  But  among  these  makeshifts  I  have  some 
preferences  and  some  distinct  antipathies  which  have 
guided  me  in  deciding  such  cases  as  have  been  sub- 
mitted to  me  under  the  limitation  I  assume  to  exist 
in  the  present  instance. 

The  rule  of  gradual  reduction,  as  I  may  term  it, 
by  which  the  blanket  policy  is  made  to  contribute 
first  on  its  whole  amount,  along  with  any  specific 
insurance  applicable,  to  pay  the  loss  on  one  item — 
usually  that  where  the  loss  is  heaviest,  either  actual 
or  in  proportion  to  the  amount  of  specific  insurance 
— and  then  with  its  balance  in  like  manner  in  the 
next  item,  and  so  on,  is  unquestionably  the  one  that 
has  greatest  currency  among  adjusters  and  loss 
clerks.  The  merit  claimed  for  it  is  the  rule  that 
mpkes  the  insured's  indemnity  go  furthest.  This 
rule  was  adopted  by  the  Supreme  Court  of  Errors  of 
Connecticut,  in  Schmaelzle  vs.  Lancashire  Fire  Ins. 
Co.  The  rule,  however,  is  absolutely  vicious  in  the- 
ory and  in  practice — as  a  specimen  of  policy  inter- 
pretation, and  as  a  measure  of  justice.  Like  the  old 
Albany  rule,  which  makes  the  blanket  policy  con- 
tribute on  its  full  amount  with  each  of  the  specific 
insurances,  it  sacrifices  the  blanket  policy  by  making 
it  contribute,  not  once,  as  the  contribution  clause  re- 
quires, but  again  and  again,  on  at  least  a  portion  of 
the  same  limit  of  liability.  Moreover,  when  the 
blanket  policy  has  a  co-insurance  clause,  as  it  has 
more  than  nine  times  out  of  ten  nowadays,  this  rule 
is  precisely  the  one  that  soonest  sacrifices  the  in- 
sured by  trying  to  saddle  on  that  policy  a  loss  that 
the  inevitable  application  of  the  co-insurance  clause 
will  cut  in  two  and  let  him  collect  only  a  portion  of 
it — maybe  the  smaller  portion,  at  that.  I  therefore 
repudiate  the  doctrine  of  the  Schmaelzle  case,  utterly 
and  unreservedly,  its  conclusions,  its  reasonings  and 
its  implications  all  and  several. 

An  extreme  plausible  modification  of  this  gradual 
reduction  rule  is  one  that  is  sometimes  applicable  to 
two  or  more  building  items,  but  not  to  items  com- 
prising, for  example,  building,  machinery  and  stock. 
It  makes  the  blanket  policy  contribute  first  on  build- 
ing where  fire  started,  then  with  its  remainder  on 
the  building  next  attacked,  etc.  Unquestionably,  if 
two  or  three  successive  and  independent  fires,  sepa- 
rated by  intervals  of  a  day  or  even  an  hour,  occurred 
in  the   several  buildings,   that  apportionment  would 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  121 

be  right;  but  this  analogy,  which  is  relied  on  by  the 
advocates  of  the  rule,  is  really  very  defective,  just 
because  one  fire  and  one  resulting  loss  under  a  pol- 
icy are  both  mathematically  and  practically  different 
from  two  cases  where  the  damage  in  one  building 
was  all  done  before  the  fire  attacked  the  next  one, 
and  so  on. 

All  things  considered,  I  am  quite  clear  that  any 
division  of  the  blanket  policy  for  contribution  to  the 
several  losses,  however  imperfectly  arrived  at,  is 
preferable  to  the  Albany  rule,  or  to  either  form  of 
the  gradual  reduction  rule  just  given.  And  of  the 
various  rules  for  dividing  the  blanket  policy,  the 
two  leading  ones  are  the  Reading  rule,  which  divides 
it  in  the  ratio  of  the  valuables  of  the  several  classes 
of  property  covered  by  it,  and  the  Finn  rule,  which 
divides  it  in  the  ratio  of  the  several  losses  instead. 
The  Reading  rule  was  adopted  by  the  Supreme  Court 
of  Vermont,  in  Chandler  vs.  Ins.  Co.  of  North  Amer- 
ica, in  a  curt  and  confident  opinion  that  ignores, 
perhaps  from  real  ignorance  of,  all  the  struggles  of 
the  judicial  and  lay  intellect  with  this  problem  for 
the  greater  part  of  a  century,  and  treats  it  as  if  it 
were  a  newly  invented  but  very  futile  snare,  specially 
set  for  the  feet  of  justice,  in  her  blindfold  progress 
through  the  Green  mountains.  The  Finn  or  Gris- 
wold  rule,  rechristened  in  recent  years  the  Kinne 
rule,  is  warmly  advocated  by  Mr.  Daniels  in  his  lit- 
tle tract  on  apportionment,  published  a  year  or  two 
ago.  I  do  not  consider  either  rule  sound  or  safe. 
I  am  of  opinion  that  where  the  blanket  policy  has 
no  kind  of  co-insurance  clause  it  should  be  divided 
as  a  rule  in  which  not  values  at  all  and  not  losses 
alone,  but  the  relation  between  losses  and  insurance, 
is  the  determining  factor,  and  that  where  it  has  a 
co-insurance  clause  of  any  kind,  then  the  division 
should  be  determined,  not  by  the  losses  at  all  and  not 
by  values  alone,  but  by  the  relation  between  values 
and  insurance.  The  Reading  rule  is  wholly  wrong 
unless  there  is  a  co-insurance  clause  in  the  blanket 
policy,  and  not  quite  right  then.  The  Finn  or  Kinne 
rule  is  always  theoreticallj^  unsound  and  often  prac- 
tically absurd  where  the  blanket  policy  has  a  co- 
insurance clause,  as  it  now  almost  always  has;  and 
even  where  there  is  no  such  clause  the  rule  is  de- 
fective, as  was  clearly  shown  by  the  late  Edward  F. 
Rice,  of  the  Aetna,  in  his  remarkable  paper  on  "Con- 
tribution in  Fire  Losses,"  published  in  the  proceed- 
ings   of   the    Fire   Underwriters'    Association    of   the 


122  THE  APPORTIONMENT  OF  LOSS  AND 

Northwest  in  1880,  a  paper  which  almost  everybody 
seems  to  have  forgotten  now,  but  which  is  extremely 
well  worth  reading  still. 

Mr.  Rice  proposed  to  substitute  a  most  ingenious 
rule,  which  for  many  years  I  used  in  cases  not  in- 
volving the  presence  of  a  co-insurance  clause,  and, 
on  the  whole,  with  satisfaction.  Assuming  that  each 
specific  policy  has  an  equal  right  with  the  others  to 
contribution  from  the  face  of  the  blanket  policy,  but 
that  these  several  rights  are  conflicting  and  irrecon- 
cilable, Mr.  Rice  would  ascertain  that  the  over-insur- 
ance or  salvage,  i.  e.,  excess  of  insurance  over  loss, 
would  on  each  item,  if  the  face  of  the  blanket  policy 
were  applied  to  each  in  turn.  Then  he  would  so 
divide  his  blanket  policy  that  its  several  divisions, 
when  added  to  the  several  over-insurances  (defined 
as  before),*  bear  the  same  ratio  to  each  other  that 
they  would  if  each  item  got  the  benefit  of  contribu- 
tion from  the  face  of  the  blanket  policy.  In  other 
words,  he  treated  the  problems  as  one  in  the  appor- 
tionment of  salvage,  and  therefore  divided  the  actual 
aggregate  salvage,  or  excess  of  insurance  over  whole 
loss,  in  the  same  ratio  that  the  separate  salvage  or 
over-insurance  would  bear  to  each  other  if  the  blan- 
ket policy  covered  for  its  full  amount  on  each  item. 
The  rule  is  not  so  hard  to  apply  as  it  sounds,  and 
the  longer  one  examines  it  and  tests  it  by  applica- 
tion to  concrete  cases,  the  more  likely  one  is  to  ap- 
prove of  it.  And,  at  any  rate,  it  is  fundamentally 
and  unassailably  sound  in  assuming  that  it  is  not 
primarily  the  blanket  policy,  but  the  whole  excess 
of  insurance  over  loss,  that  is  to  be  divided;  the 
final  division  of  the  blanket  policy  being  determined 
by  that  consideration. 

On  the  whole,  Jioweyer,  I  now  prefer,  in  the  rare 
cases  where  there  is  no  co-insurance  clause  at  all  on 
the  blanket  policy,  and  so  where  the  loss  and  not 
value  is  the  proper  determining  factor,  to  simplify 
this  rule,  and  to  change  its  basis  by  substituting  per- 
centages for  amounts  in  dealing  with  the  salvage  to 
be  apportioned.  My  rule  in  such  cases  is  simply  to 
divide  the  blanket  policy,  so  that  whenever  possible 
and  as  nearly  as  possible,  the  ratio  of  insurance  to 
loss  shall  be  the  same  on  all  items.  This  is  cutting 
the  Gordian  knot  with  a  vengeance,  for  it  usually 
results  and  would  result  in  this  case  in  making  all 
policies  pay  the  same  percentage  of  their  face 
amounts.  Why  not?  •  The  aggregate  insurance  ex- 
ceeding the  aggregate  loss,  and  much  of  this  insur- 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  12a 

ance  being  of  the  floater  variety,  available  where 
needed,  and  the  insured  having  no  needs  or  prefer- 
ences to  consult,  why  should  not  the  insurers  take 
pot  luck,  and  share  the  salvage  pro  rata? 

(But  when  there  are  co-insurance  clauses  on  the 
policies,  and  especially  on  the  blanket  policies,  the 
division  must  be  determined  primarily  by  values,, 
not  losses;  also,  theoretically  and  often  practically 
you  may  expose  the  insured  to  loss  as  a  co-insurer 
on  a  particular  item,  when  he  has  plenty  of  insur- 
ance in  the  aggregate  to  relieve  him  of  that  hard- 
ship, and  much  of  it  available  wherever  needed. 
Here  the  logic  of  the  situation  is  simply  to  so  divide 
the  blanket  policy  that  its  division,  when  added  to 
the  respective  specific  insurance,  will,  when  possible 
and  as  nearly  as  possible  make  the  insurance  on  each 
item  bear  the  same  ratio  to  the  value  thereof  as  the 
aggregate  insurance  on  all  items  bears  to  the  aggre- 
gate value  of  all,  so  that  a  man  who  has  an  aggre- 
gate of  80  per  cent,  insurance  (or  50  per  cent.,  or 
120  per  cent.)  shall,  if  possible,  get  credit  just  for 
that  percentage  on  each  item,  and  suffer  or  escape 
suffering  accordingly.) 

Under  these  two  rules,  the  first  of  which  I  would 
prescribe  if  there  are  no  co-insurance  clauses  on  any 
of  the  policies,  and  the  second  if  there  are  such 
clauses,  the  results  of  the  apportionment  in  your 
case  would  be  to  make  all  policies  pay  $804.22  per 
$1,000  of  insurance,  in  the  absence  of  the  co-insur- 
ance clause,  and  to  make  the  aggregate  payments  as 
follows,  if  the  insurance  clause  is  present: 


124 


THE  APPORTIONMENT  OF  LOSS  AND 


-'    v.^   «^^  ^^,/   (^   s^^  ^^   s^^  N^/ 

woo«>oooooooooooo 


O 


iJoooooooo 

lOOOOOOOO 
300000000 


M 

•  00  00  tH  rH  iH  tH 

•  t^  C- tH  tH  tH  rH 

CO  CO  CO  CO  CC  CO 
•  00  00  "^  M* -rt<  Tf 

fQ     0)     . 


M  S 


•  O  O  tH  rH  r-l  rl 
OOIOIOIOLO 

'  tz>  <z>  la  id  la  la 


00  «o 

^coi>: 

Poo 
woo«o 


,oooo 

.«£)«£>  CD  «0 

.CO  CO  CO  CO 


to 

I  8o§ 

•S    Coo 
PQ    J^oo 

WrHCsT 


•C^l  M 

*  0000 


oooo 


^C<^CO-5t^lOlXlt^OO 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  125 

Mr.  Rice's  rule  would  have  made  companies  1  and 
2  pay  $800  per  $1,000;  companies  3  and  4,  $808.14 
per  $1,000,  and  companies  5,  6,  7  and  8,  $804.43  per 
$1,000;  his  rule  and  the  one  of  mine,  which  assumes 
no  co-insurance  clauses  to  be  present,  working  out 
almost  identical  results  for  this  problem,  while  my 
rule  based  on  co-insurance  clause  varies  from  the 
other  two  but  very  slightly  in  its  outcome. 

According  as  the  co-insurance  clause  is  present  or 
absent  in  case  submitted,  the  companies  are  there- 
fore recommended  (reversing  the  proverbial  order 
of  exercises)  to  take  their  choice  and  pay  their 
money,  in  accordance  with  one  or  the  other  of  the 
two  rules  here  stated.  But  I  would  ask  them  all  to 
remember  that  all  of  these  rules  are  arbitrary,  illog- 
ical and  more  or  less  unjustifiable  substitutes  for 
the  plain  word  of  the  contract,  which  is  as  inter- 
preted at  the  beginning  of  this  letter;  and  to  join 
with  me  in  expecting  and  working  for  the  time  when 
all  the  courts  and  all  the  adjusters  will  in  all  such 
cases  give  the  same  force  and  effect  to  the  clear  lan- 
guage of  the  contribution  clause  that  they  now  give, 
for  example,  to  that  of  the  co-insurance  clause. 

Yours  very  truly,  Willis  O.  Robb. 

APPORTIONMENT  AND  CONTRIBUTION  OF 
NON-CONCURRENT    INSURANCE. 

April  20,  1905. 
Editor  ''Rough  Notes": 

On  the  31st  day  of  last  March  you  published  a 
communication  from  Willis  O.  Robb,  an  adjuster  of 
fire  losses,  of  New  York,  addressed  to  Eugene  Cary, 
manager  of  the  Western  department  of  the  German- 
American  Insurance  Company,  which  was  his  (Mr. 
Robb's)  solution  of  an  adjustment  problem  submit- 
ted to  him  for  his  consideration,  where  the  different 
companies  involved  could  not  agree  on  a  rule  for  the 
apportionment  and  contribution  of  non-concurrent 
insurance. 

I  have  very  carefully  read  and  studied  this  'Com- 
munication, and  it  has  interested  me  exceedingly 
much.  I  am  very  much  pleased  to  know  that  you 
are  publishing  the  different  rules  which  have  lately 
been  used  and  are  being  used  in  the  adjustment  of 
these  complicated  problems  of  non-concurrent  insur- 
ance. I  anticipate  that  the  publication  of  such  care- 
fully prepared  communications,  and  a  proper  and 
reasonable  discussion  of  this  subject  in  the  insurance 


126  THE  APPORTIONMENT  OF  LOSS  AND 

press,  will  bring  the  various  features  of  the  contri- 
bution of  non-concurrent  insurance  forcibly  to  the 
attention  of  the  fire  insurance  people,  and  that,  in 
the  near  future,  it  will  result  in  all,  or  nearly  all, 
of  the  fire  insurance  companies  adopting  some  gen- 
eral rule  for  use  in  the  United  States  in  these  cases, 
and  thereby  terminate  the  controversy  which  arises, 
in  nearly  every  case,  between  the  adjusters,  and 
make  it  unnecessary  for  the  assured  to  go  to  the 
courts  and  be  put  to  great  trouble,  expense  and  waste 
of  time  to  secure  an  adjustment  of  his  claim. 

The  problem  submitted  to  Mr.  Robb  and  made  the 
basis  of  his  communication  was  as  follows: 

Statement. 

Sound  Specific 

Property.                       Value.  Loss.  Insurance. 

Building  A    '..$5,200  $3,854  $3,000 

Building   B    5,070  3,380  2,000 

Totals    $10,270  $7,234  $5,000 

Compound  insurance  on  Buildings  A  and  B...  4,000 

Total   insurance    $9,000 

Mr.  Robb  says:  "The  only  apportionment  for 
double  non-concurrent  cases  of  this  kind  that  the 
strict  language  of  the  contribution  clause  of  the 
standard  policy  will  justify,  is  one  that  many  courts 
and  many  insurance  companies,  also,  hesitate  to 
adopt,  because  it  fails  to  indemnify  the  assured  fully, 
despite  the  excess  of  insurance  over  loss.  But  the 
contribution  clause  seems  to  me  to  be  plain  in  its 
bearing  on  this  problem,  and,  under  it,  the  appor- 
tionment in  the  case  you  have  submitted  would  be 
as  follows:  $4,000  blanket  insurance  on  A  and  B 
pavs  four-ninths  of  $7,234,  loss  on  A  and  B,  or  $3,- 
215.11." 

There  is  no  doubt  about  this  proposition  that  $3,- 
215.11  is  the  correct  and  the  legal  liability  of  the 
$4,000  compound  insurance. 

Pro    Rata    Contribution    Clause. 

"This  company  shall  not  be  liable  under  this  pol- 
icy for  a  greater  proportion  of  any  loss  on  the  de- 
scribed property  *  *  *  than  the  amount  hereby  in- 
sured shall  bear  to  the  whole  insurance,  whether 
valid  or  not,  or  by  solvent  or  insolvent  insurers, 
•covering  such  property." 


CONTRIBUTION  OP  COMPOUND  INSURANCE.  127 

The  compound  insurance  covers  to  the  extent  of 
$4,000  on  both  buildings,  and  as  the  specific  insur- 
ance on  the  two  buildings  is  $5,000,  we  have  a  total 
of  $9,000  on  buildings  A  and  B.  When  we  apply 
the  pro  rata  contribution  clause,  we  find  that  4000- 
9000  of  $7,234,  the  total  loss,  is  $3,215.11.  This  ap- 
plication of  the  clause  ought  to  end  any  and  all  ar- 
gument as  to  the  liability  of  the  compound  insurance. 
The  courts  do  not  stand  by  this  clause  where  there  is 
non-concurrent  insurance,  as  in  this  case. 

Mr.  Robb  says,  in  this  connection,  regarding  the 
liability  of  the  specific  insurance:  "$3,000  specific  in- 
surance on  A  pays  three-sevenths  of  $3,854,  loss  on 
A,  or  $.1,651.71,"  The  specific  insurance  on  buildings 
A  is  $3,000,  and  the  loss  is  $3,854.  The  compound 
insurance  on  buildings  A  and  B  is  $4,000.  Mr.  Robb 
treats  the  whole  of  the  $4,000  compound  insurance 
on  buildings  A  and  B  as  so  much  additional  insur- 
ance on  building  A,  and  gets  a  total  of  $7,000  on  A 
to  pay  $8,354  loss.  He  would  apply  the  same  rule  to 
building  B  and  make  specific  insurance  of  $2,000  pay 
two-sixths  of  the  $3,380  loss,  or  $1,126.67. 

I  contend  that  the  position  he  has  taken  as  to  the 
liability  of  the  specific  insurance  is  radically  wrong, 
and  it  is  not  in  any  way  substantiated  by  the  pro 
rata  contribution  clause. 

Mr.  Robb  says:  "In  this  way,  and  in  this  way 
only,  each  company  will  pay  no  greater  proportion 
of  the  loss  on  the  property  it  covers  than  its  amount 
constitutes  of  the  whole  insurance  thereon,  and  that 
Is  the  clear  limit  of  liability  fixed  by  the  contribu- 
tion clause." 

Both  of  these  claims  are  based  on  the  assumption 
that  the  full  amount  of  the  compound  insurance  on 
buildings  A  and  B  is  additional  insurance  on  each 
building.  We  must  now  remember  that  we  are  con- 
sidering the  question  of  the  whole  insurance  from 
the  specific,  and  not  the  compound,  insurance  end 
of  the  argument.  This  being  the  case,  the  first  ques- 
tion that  confronts  us  is,  what  is  the  amount  of  the 
whole  insurance  on  building  A?  We  know  there  is 
$3,000  specific  insurance  on  building  A.  Mr.  Robb 
contends  that  all  of  the  $4,000  compound  insurance 
is  the  other  insurance,  and  that  the  whole  insurance 
on  building  A  is  $7,000.  I  must  emphatically  say 
that,  in  this  case,  the  whole  of  the  $4,000  compound 
Insurance  is  not  other  insurance  on  building  A,  be- 
cause,  by   the   terms    of   the   contract,    it   covers    on 


128  THE  APPORTIONMENT  OF  LOSS  AND 


buildings  A  an  B,  and  there  is  a  loss  on  both 
buildings. 

The  contribution  clause  limits  the  total  contribut- 
ing insurance  to  that  "on  the  described  property," 
and  the  "described  property"  is  building  A.  It  also 
limits  the  "whole  insurance"  to  the  amount  "cover- 
ing such  property,"  and  this  means  the  amount  "cov- 
ering" on  building  A,  which  is  all  that  is  meant  by 
the  words  "such  property." 

We  do  not  know  what  proportion  of  the  compound 
Insurance  of  $4,000,  which  covers  on  buildings  A  and 
B,  covers  on  building  A,  and  we  are  therefore  driven 
by  necessity  to  adopt  some  arbitrary  rule  for  making 
an  apportionment  of  the  compound  insurance  to  de- 
termine the  proportion  of  it  which,  with  the  $3,000 
specific  insurance,  makes  the  "whole  insurance"  on 
building  A.  What  I  have  said  regarding  building  A 
applies,  with  the  same  reasoning,  to  building  B. 

It  is  true  that  the  Court  of  Appeals  of  New  York, 
in  the  case  of  Farmers'  Peed  Co.  vs.  Scottish  Union 
and  National  Insurance  Company,  said:  "The  largest 
sum  which  in  any  event  can  be  collected  under  a 
noM^'v.  and  not  the  smaller  sum  which  can  be  col- 
lected under  special  circumstances,  is  the  amount  of 
Insurance  effected  by  the  policy."  The  court  also 
said:  "The  amount  of  insurance,  therefore,  is  the 
largest  sum  that  the  company,  under  any  circum- 
stances, according  to  the  terms  of  the  policy,  can  be 
required  to  pay."  The  Supreme  Court  of  Wisconsin, 
in  the  case  of  Isaac  Stephenson  et  al.  vs.  Agricultu- 
ral Insurance  Company,  approved  in  every  way  the 
New  York  decision. 

These  two  decisions  do  not  justify  the  rule  'advo- 
cated by  Mr.  Robb  to  determine  the  liability  of  the 
specific  insurance.  In  the  two  cases  mentioned  all 
policies  covered  the  same  property,  and  in  the  same 
way,  except  that  some  of  them  had  the  80  per  cent, 
co-insurance  clause  attached  and  some  did  not.  The 
companies  whose  policy  had  the  limitation  clause 
attached  contended  that  the  effect  of  this  clause  on 
a  policy,  when  there  were  other  policies  involved, 
without  the  limitation  clause,  was  to  reduce  the 
amount  of  insurance  named  in  the  policies  with  the 
limitation  clause  attached.  The  result  was  to  relieve 
the  assured  of  the  restrictive  effect  of  the  limitation 
clause  by  imposing  a  greater  burden  on  the  policies 
without  the  limitation  clause.  The  assured,  by  ac- 
cepting policies  with  the  limitation  clause  attached, 
deliberately    stipulated    away    some    of    their    rights 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  129 

which  would  exist  under  a  plain  policy,  and  the  courts 
in  both  cases  held  that  they  could  not  so  construe 
the  contracts  as  to  relieve  the  assured  of  the  natural 
results  of  their  express  and  deliberate  act  by  placing 
the  burden  on  the  other  policies.  The  case  submit- 
ted to  Mr.  Robb  is  so  unlike  the  New  York  and  Wis- 
consin cases  mentioned  herein  that  it  is  improper 
and  unreasonable  for  him  to  refer  to  them  as  justi- 
fying his  position  on  the  actual  liability  of  the  spe- 
cific insurance  on  buildings  A  and  B. 

We  have  a  loss  on  each  of  the  two  buildings  cov- 
ered by  the  compound  insurance,  and  therefore  the 
compound  insurance  covers  for  all  purposes  neces- 
sary to  indemnify  the  assured  on  both  buildings. 
The  assured  has  not  made  any  special  contracts  by 
which  he  has  stipulated  away  any  of  his  rights.  It 
is  true,  his  insurance  is  not  concurrent.  It  is  also 
true  that  a  part  of  the  $4,000  compound  insurance 
covers  on  building  A  and  a  part  on  building  B,  and 
not  all  of  it  on  building  A  or  all  of  it  on  building  B. 
It  is  not  only  unreasonable,  but  absolutely  impossi- 
ble for  the  $4,000  compound  insurance  to  cover  for  its 
full  amount,  for  any  purpose,  on  each  of  the  build- 
ings, at  the  same  time,  when  there  is  a  loss  on  both 
buildings.  If  it  does,  then  we  have  the  use  of  the 
Albany  rule  fully  justified. 

The  whole  difficulty  in  this  problem  is  to  determine 
the  division  to  be  made  of  the  $4,000  compound  in- 
surance  and  ascertain  the  proportion  that  should 
cover  on  each  building  for  the  purpose  of  paying  the- 
losses.  Any  apportionment  made  of  the  compound 
insurance  must  be  arbitrary,  and  the  most  we  caa 
expect  or  wish  for  under  the  present  conditions  is  to 
use  the  best  rule. 

What  we  need  is  a  rule  adopted  for  general  use 
by  all  the  principal  fire  insurance  companies,  which 
will,  so  far  as  the  companies  are  concerned,  fix  a 
basis  for  making  the  compound  insurance  specific. 
A  rule  of  any  kind  for  this  purpose  would  not  con- 
trol the  acts  of  the  courts,  but  its  use  by  the  leading 
companies  would  reduce,  to  a  very  large  extent,  the 
number  of  cases  of  this  class  reaching  the  courts. 
A  rule  for  this  purpose  would  not  be  binding  on  the 
assured,  yet  if  one  were  approved  and  applied  by  all 
the  leading  companies,  the  assured  would  find  very 
little  reason  to  oppose  it;  and  he  would  not  be  anx- 
ious, unless  it  were  an  aggravating  case,  to  spend 
his  money  and  be  annoyed  with  a  lawsuit,  and  there- 
fore he  would,  though  at  some   loss,  submit  to   its 


130  THE  APPORTIONMENT  OP  LOSS  AND 


application.  I  do  not  favor  the  use  of  any  rule 
which  fails  to  pay  the  loss  in  full  if  the  total  insur- 
ance is  equal  to  or  more  than  the  loss,  when  it  is 
necessary  to  make  an  arbitrary  apportionment  and 
when  there  are  no  limitation  clauses  on  the  policies. 

If,  in  this  case  submitted  to  Mr.  Robb,  the  loss 
were  on  building  A  only,  then  the  liability  of  the 
$3,000  specific  insurance  would  be  three-sevenths  of 
the  loss,  and  the  compound  insurance  would  pay 
four-sevenths  of  it.  If  there  were  no  loss  on  building 
A,  but  the  loss  was  all  on  building  B,  the  $2,000  spe- 
cific insurance  would  pay  two-sixths  and  the  com- 
pound insurance  would  pay  four-sixths  of  the  loss. 
The  claim  that  the  liability  of  the  specific  insurance 
on  each  item  is  the  same,  whether  the  loss  is  on 
one  of  the  items  specifically  insured,  or  on  both  of 
them,  covered  by  the  compound  insurance,  is,  in  my 
judgment,  decidedly  wrong  and  unjust. 

The  Supreme  Court  of  Iowa,  in  the  case  of  the  Le- 
Sure  Lumber  Co.  vs.  Mutual  Fire  Ins.  Co.,  held: 

"The  policy  was  designed  to  secure  the  plaintiff 
against  loss  by  fire  in  any  or  all  of  the  yards  to  the 
full  amount  of  the  policy.  It  covered  all  of  the 
property  which  was  destroyed,  and,  if  it  is  paid  in 
full,  it  will  not  fully  compensate  the  plaintiff  for  the 
loss  sustained.  In  ascertaining  the  amount  of  insur- 
ance, for  the  purpose  of  an  apportionment,  it  would 
be  just,  in  the  absence  of  a  stipulation  to  the  con- 
trary, to  consider  only  the  insurance  on  the  property 
injured  or  destroyed;  and  it  will  be  presumed,  in  the 
absence  of  a  showing  to  the  contrary,  that  the  par- 
ties to  the  contract  intended  to  provide  for  a  just 
result.  The  language  they  used  does  not  necessarily 
mean  that  in  case  of  loss  the  defendant  should  only 
toe  liable  for  such  proportion  of  it  as  the  amount  it 
insured  was  of  the  total  insurance  on  all  the  property 
-described  in  its  policy,  whether  the  concurrent  in- 
•surance  was  on  all  of  the  property,  or  only  a  part  of 
it.  We  think  a  permissible,  and  the  correct,  interpre- 
tation of  the  policy  is  that  in  case  of  a  loss  the  de- 
fendant was  not  to  be  liable  for  a  greater  proportion 
©f  it  than  the  amount  of  its  policy  bore  to  the  total 
insurance  on  the  property  injured  or  destroyed.  It 
is  true,  the  words  'described  property,'  if  not  modi- 
fied, refer  to  all  of  the  property  covered  by  the  pol- 
icy, and  the  phrase,  'covering  such  property,'  is 
equally  comprehensive;  but,  considered  in  their  rela- 
tion to  the  word  'loss'  and  the  purpose  for  which  the 
policy  was  issued,  we  are  of  the  opinion  that  they 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  131 


should  be  held  to  refer  to  property  which  should  be 
injured  or  destroyed." 

In  the  case  of  Page  Bros.  vs.  Sun  Insurance  Office, 
the  United  States  Circuit  Court  of  Appeals  decided: 

"The  result  is  that,  under  a  clause  in  a  policy  of 
insurance  which  provides  that  the  company  shall  not 
be  liable  for  a  greater  proportion  of  any  loss  on  the 
property  described  therein  than  that  which  the 
amount  insured  thereby  shall  bear  to  the  whole 
insurance: 

"First.  Compound  policies,  insuring  the  property 
described  in  such  a  policy,  and  other  property,  cover 
the  property  so  described  to  their  full  amount  in 
case  of  a  loss  upon  the  property  described  in  the 
specific  policy,  and  no  loss  on  the  other  property  de- 
scribed in  the  compound  policies. 

"Second.  In  such  a  case,  the  company  issuing  the 
specific  policy  is  liable  for  no  greater  proportion  of 
the  loss  than  that  which  the  amount  of  such  policy 
bears  to  the  total  amount  of  both  the  compound  and 
specific  policies  covering  the  property  it  describes." 

I  therefore  contend  that  the  limit  of  liability  fixed 
by  Mr.  Robb  for  the  specific  insurance  is  incorrect; 
is  not  in  harmony  with  the  pro  rata  contribution 
clause;  is,  in  fact,  impossible;  and  that  the  courts 
are  unquestionably  correct  when  they  decline  to 
construe  the  policy  as  he  suggests.  As  to  his  theory 
of  the  liability  of  the  compound  insurance,  I  wish 
to  say  I  fully  agree  with  him  that  it  is  only  four- 
ninths  of  $7,234,  the  total  loss.  This  construction  of 
the  contract  ought  to  be  insisted  on  by  the  company, 
and  the  courts  should  recognize  it,  though  it  may 
work  an  injury  to  the  assured. 

I  wish  now  to  call  your  attention  to  the  adjust- 
ment problem  submitted  to  Mr.  Robb,  and  carefully 
investigate  the  two  rules  which  he  has  used,  by 
working  the  problem  out  in  detail  under  the  appli- 
cation of  each  rule. 

An  examination  of  Mr.  Robb's  solution  of  the  ad- 
justment problem  submitted  to  him  shows  that  he 
has  one  rule  for  cases  where  there  are  no  limitation 
clauses,  and  another  rule  to  be  used  when  some  or 
all  of  the  policies  have  a  limitation  clause  attached. 

In  case  there  are  lio  limitation  clauses  on  the  poli- 
cies, he  says:  "My  rule  in  such  cases  is  simply  to 
divide  the  blanket  policy  so  that,  whenever  possible 
and  as  nearly  as  possible,  the  ratio  of  insurance  to 
loss  shall  be  the  same  on  all  items.  This  is  cutting 
the  Gordian  knot  with  a  vengeance,  for  it  usually 


132 


THE  APPORTIONMENT  OP  LOSS  AND 


results,  and  would  result  in  this  case,  in  making  all 
policies  pay  the  same  percentage  of  their  face 
amounts.  Why  not?  The  aggregate  insurance  ex- 
ceeding the  aggregate  loss,  and  much  of  this  insur- 
ance being  of  the  floater  variety,  available  where 
needed,  and  the  assured  having  no  needs  or  prefer- 
ence to  consult,  why  should  not  the  insurers  take 
pot  luck,  and  share  the  salvage  pro  rata?'* 


M  t- TjH  C- t- 00  00  00  30 
^  irSiHOOCQCOCOCO 
Co  rj<  Oi  «©  CO  Oi  05  05  Ci 
Mh  00  CO  t- 1- 1- 1- 1- c- 


« 


oooooooo 

oooooooo 

d oooooooo 

i->  oooooooo 

P  oooooooo 


o 


. -^  rt<  CO  ec  CO  CO 

•  t>  t-coococo 

•  o  d  "^  rj^  "fl^  ""^^ 
^  eo  ?o  CO  CD  CO  CO 

^  t~"  t>»  Tt^  '^  ^  ^ 


bo 


E 


•  ooco  CO  coco 

•  O  O  t-  L^  t-  l^ 

•  d  o'  o"  d  d  d 

*OO^T-^T-n 

OOCO  CO  COCO 


CO  t' 


OS  Oi  Ci  Oi 
'coco  CO  CO 


t 

o 

Q. 

a 

< 


:3  c 


OO 

oo 

OO 


<  3       - 

rr    tHC> 


•  cqc<icci  M 

O  Oi  Oi  Oi 

'oooooooo 

I  COCO  COCO 


t<  LO  COC^  GC 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  133 

These  results  are  obtained  by  dividing  the  total 
insurance  of  $9,000  by  $7,234,  the  total  loss,  which 
gives  a  percentage  of  insurance  to  loss  of  1.244124 
plus.  This  percentage  of  insurance  to  loss  is  multi- 
plied by  the  total  loss  on  building  A,  and  it  gives  a 
total  insurance  on  this  building  of  $4,794.86,  from 
which  we  deduct  the  $3,000  specific  insurance  to  get 
the  amount  of  the  compound  insurance  covering 
building  A,  which  is  $1,794.86.  By  the  same  system 
of  figuring  we  get  $2,205.14  as  the  proportion  of  the 
compound  insurance  covering  on  building  B. 

When  some  or  all  of  the  policies  have  a  limitation 
clause  attached,  Mr.  Robb  would,  as*  he  says,  do  as 
follows:  "But  when  there  are  co-insurance  clauses 
on  the  policies,  and  especially  on  the  blanket  poli- 
cies, the  division  must  be  determined  primarily  by 
values,  not  losses;  also,  theoretically,  and  often  prac- 
tically, you  may  expose  the  insured  to  loss  as  a  co- 
insurer  on  a  particular  item,  when  he  has  plenty  of 
insurance  in  the  aggregate  to  relieve  him  of  that 
hardship,  and  much  of  it  available  wherever  needed. 
Here  the  logic  of  the  situation  is  simply  to  so  divide 
the  blanket  policy  that  its  division,  when  added  to 
the  respective  specific  insurance,  will,  when  possible 
and  as  nearly  as  possible,  make  the  insurance  on 
each  item  bear  the  same  ratio  to  the  value  thereof 
as  the  aggregate  insurance  on  all  items  bears  to  the 
aggregate  value  of  all,  so  that  a  man  who  has  an 
aggregate  of  80  per  cent,  insurance  (or  50  per  cent, 
or  120  per  cent.)  shall,  if  possible,  get  credit  just 
for  that  percentage  on  each  item,  and  suffer  or  es- 
cape suffering  accordingly." 

The  above  rule  applied  to  the  problem  submitted 
to  Mr.  Robb  produces  the  following  apportionment 
and  contribution: 


134 


THE  APPORTIONMENT  OP  LOSS  AND 


CO  t-'^'^  CO  CO  CO  CO 
^Irt  iH  O  O  CO  CO*  CO*  CO 


2  0<=><=><=>'='0000 
~  j-jOOOOoOOO 

doooooooo 

fiOOOOOOOOi 

Soooooooo 


rt*  Tt<  CO  CO  CO  CO 

s 

CO     ! 

C- t- CO  «Ci  «0  «5 

Sd>^^^cc 

3 

r    d   . 

«0  O  «£>  O  <X)  CO 

(C 

WPh   • 

t-  t-  Tti  "^  "^  "^ 

O 

iJO 

»©- 

c 

c 

o 

+J 

2<u    . 

13  C 

00<x.«5«OCO 

re 

O  O  t-  t- 1-  c^ 

ododdd 

E 

OO^i-HtHtH 

p  . 

oo  «x>«o«^'=* 

c^  a  Oi  oi 

(MC<I<M(M 

CO  CO  CO  CO 


•-        C 


O 
Q. 
QL 
< 


WS 


oo 
oo 
oo 


.C<IC^C<1(M 

Oi  Oi  Oi  Oi 
•oocoooco 

COCO  CO  CO 


Or-lcqcOTt^lOCOt-OO 


CONTRIBUTION  OP  COMPOUND  INSURANCE.  135 

In  the  claim  under  consideration  we  have  a  sound 
value  of  $10,270,  and  a  total  of  $9,000  insurance.  By 
dividing  the  total  insurance  by  the  sound  value,  we 
get  a  percentage  of  insurance  to  sound  value  of 
.876338  plus,  which,  multiplied  by  the  sound  value 
of  building  A,  gives  $4,556.96  as  the  total  insurance 
on  building  A.  If  we  deduct  from  this  the  specific 
insurance  of  $3,000,  it  leaves  $1,556.96  as  the  propor- 
tion of  the  compound  insurance  covering  on  building 
A.  If  we  should  use  $5,070,  the  sound  value  of  build- 
ing B,  in  the  place  of  the  sound  value  of  building  A, 
we  get  $2,443.04  as  the  proportion  of  the  comi)ound 
insurance  covering  building  B. 

Under  the  application  of  this  rule,  we  get  a  total 
insurance  on  building  A  of  $4,556.96,  with  a  sound 
value  of  $5,200.  An  80  per  cent,  co-insurance  clause 
would  be  inoperative,  as  the  insurance  exceeds  $4,- 
160,  which  is  80  per  cent,  of  the  sound  value.  The 
same  is  true  regarding  building  B,  where  the  total  in 
surance  is  $4,443.04  and  the  sound  value  $5,070. 

I  infer  from  the  wording  of  this  rule  that  the  lia- 
bility of  the  compound  insurance  under  a  limitation 
clause,  if  it  were  operative,  would  not  be  determined 
until  after  the  apportionment  of  the  compound  in- 
surance is  made,  based  on  the  sound  value  of  the 
two  items  specifically  insured.  I  think  this  incor- 
rect. If  the  total  sound  value  was  $15,000,  instead 
of  $10,270,  the  assured,  to  be  fully  protected  under 
the  80  per  cent,  co-insurance  clause,  should  have 
$12,000  or  more  insurance.  Having  only  $9,000  in- 
surance, he  would  be  compelled  to  stand  three- 
twelfths  of  the  loss.  This  would  fix  the  liability  of 
the  $4,000  compound  insurance  at  four-twelfths  of 
$7,234,  which  is  $2,411.33.  This  does  not  in  any  way 
determine  the  liability  of  the  specific  insurance.  The 
compound  insurance  must  be  made  specific  on  some 
basis  to  determine  the  amount  of  total  insurance  on 
each  building  before  we  can  tell  whether  the  80  per 
cent,  co-insurance  clause  is  operative  or  not  as  to  the 
specific  insurance. 

The  assured  who  has  accepted  a  policy  wath  an 
80  per  cent,  co-insurance  clause  attached  has  stipu- 
lated away  some  of  his  rights  if  he  fails  to  have,  at 
the  time  of  fire,  insurance  equal  to  or  more  than  80 
per  cent,  of  the  sound  value,  and,  if  the  circum- 
stances are  such  as  to  make  the  limitation  clause 
operative,  and  it  works  to  the  assured's  injury,  he 
must  suffer.     He  can  not,  under  any  circumstances, 


136  THE  APPORTIONMENT  OF  LOSS  AND 

enforce  other  policies  to  make  good  what  he  loses 
by  the  co-insurance  clause.  It  was  so  held  in  the 
two  following  cases: 

Farmers'   Feed  Co.  vs.   Scottish  Union  and   Na- 
tional Ins.  Co.,  65  N.  W.  Reporter  1105; 

Isaac  Stephenson  et  al.  vs.  Agricultural  Ins.  Co., 
January  1903,  Wis.  Supreme  Court. 

It  is  true  that  in  ordinary  cases  of  non-concurrent 
insurance — that  is,  where  there  are  no  special  lim- 
itation clauses  on  the  policies — any  arbitrary  appor- 
tionment of  the  compound  insurance  would  not  be 
approved  by  the  courts  if  the  assured  has  as  much 
or  more  insurance  than  loss,  unless  the  assured  is 
fully  indemnified. 

The  questions  involved  in  a  case  of  non-concurrent 
insurance,  where  there  is  an  80  per  cent,  co-insur- 
ance clause  on  the  compound  policies,  are  not  the 
same  as  in  cases  where  there  are  no  limitation 
clauses  on  them.  When  the  assured  accepts  a  policy 
with  an  80  per  cent,  co-insurance  clause,  such  as  is 
used  in  most  states;  or  with  an  80  per  cent,  reduced 
rate  clause,  such  as  is  used  in  Wisconsin;  or  with 
an  80  per  cent,  limitation  clause,  such  as  is  used  in 
Michigan,  attached,  he  deliberately  and  specifically 
stipulates  away  some  of  his  rights  which  exist  under 
the  printed  form  of  policy,  and  in  most  cases  now 
there  is  a  consideration  in  the  shape  of  reduced  cost 
for  this  express  and  specific  contract. 

After  this  examination  of  the  two  rules,  the  ques- 
tion very  naturally  arises:  How  generally  can  they 
be  used?  In  my  attempt  to  determine  the  matter, 
I  applied  them  to  an  assumed  case,  and  I  found  that 
both  rules  were  failures  when  applied  to  the  follow- 
ing assumed  adjustment  problem.  I  give  herein  the 
assumed  case  and  explain  the  results  as  obtained  by 
me  when  applying  the  two  rules  as  I  understand 
them : 

Statement. 

Sound  Specific 

Value.  Loss.  Insurance. 

Stock    $59,000  $1,000  $40,000 

Machinery    21,000  20,000  20,000 

Totals    $80,000        $21,000  $60,000 

Compound  insurance  on  stock  and  machinery.  10,000 

Total  insurance    $70,000 


CONTRIBUTION  OP  COMPOUND  INSURANCE.  137 

If  we  apply  Mr.  Robb's  rule  for  the  apportionment 
on  the  basis  of  the  losses,  we  would  divide  $70,000, 
the  total  insurance,  by  $21,000,  the  total  loss,  which 
would  give  us  a  percentage  of  insurance  to  loss  of 
3.333333  plus,  which,  multiplied  by  the  loss  on  stock 
of  $1,000,  gives  $3,333.33  as  the  total  specific  and  com- 
pound insurance  on  stock.  This  rule  applied  to  ma- 
chinery gives  us  $66,666.67  as  the  total  specific  and 
compound  insurance  on  machinery.  The  specific  in- 
surance on  stock  being  $40,000,  the  application  of- 
this  rule  would  transfer  $36,666.67  of  this  specific 
insurance  from  stock  to  machinery.  It  would  be 
impossible  to  change  the  insurance  after  the  fire  and 
make  any  part  of  the  $40,000  specific  insurance  on 
stock  cover  on  machinery. 

If  we  make  the  apportionment,  according  to  Mr. 
Robb's  rule,  on  the  basis  of  the  sound  values,  we 
would  divide  the  total  insurance  of  $70,000  by  the 
total  sound  value  of  $80,000,  and  it  gives  us  a  per- 
centage of  insurance  to  sound  value  of  .875,  which 
multiplied  by  $21,000,  the  sound  value  of  machinery, 
gives,  as  the  total  specific  and  compound  insurance 
on  machinery,  $18,275.  This  rule  applied  to  stock 
gives  $51,625  as  the  total  specific  and  compound  in- 
surance on  stock.  The  specific  insurance  on  ma- 
chinery being  $20,000,  the  effect  of  applying  this  rule 
would  be  to  transfer  $1,725  of  the  specific  insurance 
from  machinery  to  stock.  It  would  be  impossible  to 
do  this  after  the  fire. 

Mr.  Robb  says,  when  speaking  of  the  application 
of  the  rules:  "*  *  *  So  that,  whenever  possible, 
and  as  nearly  as  possible,  the  ratio  of  insurance  to 
loss  (or  value)  shall  be  the  same  on  all  items."  If 
this  means,  in  cases  like  this  assumed  one,  to  have 
a  reapportionment  and  transfer  bodily  $36,666.67  of 
the  $66,666.67  insurance  on  machinery  to  stock,  and 
thereby  have  only  the  $40,000  specific  insurance  on 
stock  to  pay  the  loss  on  stock,  it  would  give  the 
rule  a  more  general  application;  but  in  many  cases, 
as  in  this,  the  specific  insurance  on  stock  w^ould  pay 
the  whole  loss  on  this  item,  and  the  specific  insur- 
ance on  machinery  would  pay  only  two-thirds  of  the 
loss  on  machinery.  There  is  no  good  reason  why  the 
compound  insurance  should  not  contribute  in  this 
case  in  payment  of  a  portion  of  each  loss. 

These  rules,  advocated  and  used  by  Mr.  Robb,  are 
defective  the  same  as  many  of  the  others,  and  that 
is,  they  are  not  susceptible  of  general  application. 
They  can  be  used  in  only  a  limited  number  of  cases. 


138  THE  APPORTIONMENT  OF  LOSS  AND 


These  cases  where  they  can  be  used,  I  think,  would 
be  the  exception  rather  than  the  general  rule.  If 
they  were  such  as  could  be  generally  used  (and  pro- 
duce equitable  results),  I  would  not  make  any  objec- 
tion to  them,  but,  being  so  much  limited  in  their 
application,  and  not  producing  reasonable  and  fair 
results,  I  do  not  think  they  or  either  of  them  should 
be  recognized  and  used.  W.  H.  Daniels. 

APPORTIONMENT    OP    LOSSES    UNDER    NON- 
CONCURRENT  POLICIES 

( Communication. ) 

July  6,  1905. 
Editor  "Rough  Notes": 

I  have  re'ad  with  deep  interest  a  communication 
from  Mr.  W.  H.  Daniels,  published  in  "Rough  Notes" 
of  April  20th,  relative  to  the  adjustment  of  losses  by 
fire  under  non-concurrent  policies;  and  I  heartily 
concur  in  his  hope  that  the  discussion  of  this  vexed 
question  may  lead  to  the  adoption  by  most  of  the  fire 
insurance  companies  doing  business  in  the  United 
States  of  a  rule  for  the  apportionment  of  losses  under 
non-concurrent  policies,  instead  of  leaving  the  ques- 
tion to  be  wrangled  over  by  the  adjusters,  each  con- 
tending for  the  method  that  will  best  subserve  the 
interests  of  the  company  or  companies  represented 
by  him,  for  the  occasion,  and  finally  compromised  or 
settled  by  a  majority  vote,  contrary  to  the  convic- 
tions of  these  who  may  have  advocated  a  more  log- 
ical rule  to  govern  the  case  in  question. 

It  is  not  creditable  to  the  calling  of  fire  underwrit- 
ing that  some  definite  rule  of  contribution  between 
non-concurrent  policies,  which  would  produce  uni- 
formity of  practice,  has  not  ere  this  been  agreed 
upon  and  adopted.  It  must  often  strike  the  assured 
as  being  incompatible  with  the  idea  which  the  term 
"Adjusting"  is  intended  to  convey  when  he  sees  its 
votaries  disagreeing  among  themselves  as  to  the 
proper  mode  of  procedure  in  the  settlement  of  his 
loss.  After  all,  it  is  of  greater  importance  that 
some  definite  rule  be  adopted,  than  as  to  the  partic- 
ular rule,  provided  it  does  not  leave  the  assured 
short  of  indemnity  with  unexhausted  general  policies 
in  his  possession.  Of  the  various  methods  of  appor- 
tionment current  among  adjusters,  that  which  makes 
the  compound  policies  first  pay  the  loss  on  any  item 
or  items  not  covered  by  the  specific  policies,  then 
float  with  the  loss  on  the  remaining  items,  provided 
this   furnishes   full   indemnity    (for   on   principle   all 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  139 

the  specific  policies  are  entitled  to  an  equal  claim 
for  contribution  from  the  compound  insurance  in  the 
proportion  of  the  loss  sustained  by  each).  If,  how-  • 
ever,  this  does  not  fully  indemnify  the  claimant,  and 
there  is  general  insurance  remaining  unexhausted, 
then  in  such  case  the  compound  insurance,  after 
having  satisfied  the  claim  upon  it  for  loss  upon 
such  item  or  items  not  covered  by  the  specific  insur- 
ance, is  made  to  float  with  the  loss  on  items  of  poli- 
cies having  the  widest  range,  and  not  covered  by 
policies  of  lesser  range,  then  going  back  on  items 
covered  by  specific  policies  of  lesser  range,  and  so  on 
until  the  compound  insurance  is  exhausted,  appeals 
most  strongly  to  me.  For  I  am  one  of  those  who 
believe  that  the  amount  and  subdivision  of  the  loss 
— not  the  values — govern  the  liability  of  the  policies 
covering  the  property  damaged  or  destroyed,  be  they 
specific  or  compound,  and  that  the  values  enter  as 
an  element  into  the  calculation  only  when  the  as- 
sured is  affected  by  the  conditions  of  co-insurance, 
and  then  only  as  to  the  policies  containing  the  co- 
insurance condition. 

I  maintain,  therefore,  that  the  apportionment  be- 
tween the  companies,  under  whatever  rule  it  may  be 
made,  should  first  be  stated  as  though  there  were  no 
co-insurance  conditions  in  any  of  the  policies,  and 
then  apply  the  co-insurance  to  such  policies  as  may 
contain  it.  Mr.  W.  O.  Robb,  than  whom  there  is  no 
abler  adjuster,  applies  an  entirely  different  rule  of 
apportionment  in  cases  where  part  of  the  policies 
contain  the  co-insurance  clause,  from  that  which  he 
adopts  in  cases  where  there  is  no  co-insurance.  With 
due  regard  for  the  very  high  respect  which  I  enter- 
tain for  his  opinion,  I  am  constrained  to  confess  that 
I  am  unable  to  appreciate  the  logic  of  his  reasoning 
in  the  premises.  The  discussion  should  be  con- 
ducted in  an  academical  spirit,  however,  and  we 
should  all  be  susceptible  to  conviction.  In  no  other 
way  can  we  hope  to  arrive  at  something  to  the  pur- 
pose that  will  commend  it  to  the  consideration  of 
the  companies,  and  receive  the  sanction  of  the 
courts. 

Mr.  Robb,  in  his  communication  to  Mr.  Eugene 
Carey,  under  date  of  November  ^  19,  1903,  favors  a 
strict  technical  construction  of  the  language  of  the 
contribution  clause  in  the  standard  policy,  and  he 
considers  that  the  language  of  the  court  in  the 
case  of  Farmers'  Feed  Co.  vs.  Scottish  Union  and 
National  Ins.  Co.  justifies  such  a  construction,  but  he 


140  THE  APPORTIONMENT  OF  LOSS  AND 

admits  "that  many  courts,  and  many  insurance 
companies  also,  hesitate  to  adopt  it  because  it  fails 
to  indemnify  the  insured  fully,  despite  the  excess  of 
insurance  over  loss."  I  agree  with  Mr.  Daniels  that 
the  language  made  use  of  in  rendering  its  decisions 
by  the  Court  of  Appeals  of  New  York  does  not  apply 
to  the  matter  under  discussion,  for  it  merely  decided 
that  $17,500  insurance,  containing  the  co-insurance 
clause,  was  to  be  regarded  as  other  contributing  in- 
surance to  its  full  amount  in  conjunction  with  $42,- 
500  insurance  not  containing  the  co-insurance  stipu- 
lation. The  courts  hold  with  remarkable  unanimity 
to  the  doctrine  that  no  apportionment  of  a  loss  be- 
tween the  insurance  companies  will  be  tolerated  that 
shall  not  give  the  assured  full  indemnity  while  any 
part  of  his  insurance  applicable  to  the  property  cov- 
ered shall  remain  unexhausted.  It  is  therefore  im- 
peratively necessary  that  this  attitude  of  the  courts 
be  constantly  kept  in  view  while  attempting  to  for- 
mulate some  rule  that  will  accomplish  the  desired 
end. 

In  his  endeavor  to  "cut  the  Gordian  knot,"  Mr. 
Robb,  in  cases  where  there  is  no  co-insurance  at  all 
in  the  blanket  policy,  adopts  a  rule  by  which  he 
divides  the  blanket  policy:  "So  that  whenever  pos- 
sible, and  as  nearly  as  possible,  the  ratio  of  insur- 
ance to  loss  shall  be  the  same  on  all  items." 

The  result  of  this  rule  in  the  following  example 
would  be  as  follows:  Insurance,  $9,000;  loss  on  A, 
$3,854,  and  on  B,  $3,380,  which  gives  insurance  on 
A,  $4,794.86,  and  on  B,  $4,205.14,  for  example: 


CONTRIBUTION  OP  COMPOUND  INSURANCE.  141 


00  >J 


to  CO  CO  CO  CO  CO 

OO  00  Tt<  Tt<  rti  Tj* 


OOr-li-irHiH 


rt<   ^COt^  odoO 

00  «    00  «0  CO  CO  CO  oo 


oo 
oo 

(MC<JtHt-I 

c-c-c-t- 

£  =  » 

00  00  00  00 

OOO 
OOO 

ooo 


13  ^  .Th  .t3  i^  ^  M  M 
OOO  o  c  c^  c 

ft  a  a  niS^^^ 
U2  m  m  cQ^22rQ 

THc<ieoTj<iis?Dt-oo 

66666666 

>»  >i  >;   >.  >i  >;  >5  >> 

GCCCCCCC 
rt  c^  rt  d  «3  aS  rt  oi 
ftftftftftftftft 

SSScSSSc 
oooooooo 
OOOOOOOO 


142 


THE  APPORTIONMENT  OF  LOSS  AND 


The  following  would  be  my  method  of  summarizing 
the  above  apportionment,  assuming  a  90  per  cent,  co- 
insurance clause  in  the  blanket  policies,  and  value 
as  given,  $10,270: 


6o 

o  — 

^^ 

U°^ 

Jo 

-o"^ 

Ceo 

^O 

T3  O 

52 

OO  00  00  00 

MCqNM 

oooo 

«Q  M 

CO  CO  CO  CO 

ccooi^oooooooos 
^cot--cocococococo 

00«O0000t-L-t-C- 


./OOOOOOOO 

°2oooooooo 
^oooooooo 


w  aj  w  ,., 
C  fi  C  C 

6  6  6  6 

oooo 


OOOUCCCC 
Q^  Q^  Oi  <v  ^  ci  d  a 

iHNCO-^USCOt^OO 

66666666 
^^^^^^^^ 

cccccccc 

cCddddddd 
p^AftUftftftft 

ssssssss 

oooooooo 

oooooooo 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  143 


The  foregoing  apportionment  appears  to  me  very 
much  like  robbing  Peter  to  pay  Paul,  for  it  results 
in  making  the  specific  in  effect  blanket  as  much  as 
the  collective,  and  all  pay  alike.  This  is  analogous 
to  a  practice  which  has  obtained  among  some  of  the 
marine  adjusters.  In  cases  of  general  average  ad- 
justments- under  hull  policies  which  waive  the  one- 
third  new  for  old  deduction  from  repairs,  after  hav- 
ing made  the  deduction  from  the  general  average 
repairs,  they  charge  back  to  the  hull  policies,  not 
only  the  one-third  which  they  have  waived,  but  also 
the  one-third  deduction  which,  under  the  law,  has 
accrued  to  the  benefit  of  the  cargo  and  frieght  inter- 
ests; thus  causing  the  underwriters  on  hull  to  reim- 
burse the  assured  for  that  part  of  the  deduction 
which  he  has  had  to  stand  under  a  separate  and  dis- 
tinct contract,with  which  the  underwriter  on  hull 
has  had  nothing  whatever  to  do.  Moreover,  the  un- 
derwriters on  hull  acquiesce  in  this  absurd  construc- 
tion of  the  waivers  in  their  policies. 

The  Supreme  Court  of  Errors  of  Connecticut,  in 
the  case  of  Schmaelzle  vs.  the  London  and  Lanca- 
shire Fire  Ins.  Co.,  reported  in  33  Ins.  L.  J.  632, 
has  adopted  a  somewhat  novel  method  of  apportion- 
ing a  loss  between  non-concurrent  policies.  It  makes 
the  blanket  insurance  contribute  in  its  whole  amount 
with  the  specific  on  the  item  upon  which  the  p-^-eatest 
loss  has  been  sustained,  then  the  reduced  amount  of 
the  blanket  goes  back  and  contributes  with  the  spe- 
cific on  the  item  upon  which  the  next  largest  loss 
has  been  sustained,  and  so  on,  following  the  items 
in  the  order  of  the  greatest  loss  down  to  the  least. 
In  the  case  before  the  court,  there  were  compound 
policies  covering  all  the  items,  and  aggregating  the 
amount  of  $55,000.  There  were  also  covering  on  the 
same  property  specific  policies,  covering  on  all  the 
items,  in  proportionate  amounts,  aggregating  $5,000. 
It  was  conceded  on  all  sides  that  the  assured  was 
entitled  to  complete  indemnity  in  any  event.  The 
companies  that  issued  the  compound  policies  con- 
tended that  their  policies  should  be  made  to  contrib- 
ute either  in  the  ratio  of  the  losses  or  in  the  ratio 
of  the  values  of  the  items  affected  by  the  less,  there 
being  one  small  item  upon  which  no  loss  was  sus- 
tained (preferably,  I  suppose,  the  method  that  would 
yield  them  the  greater  salvage).  The  court  admitted 
that  the  preponderance  of  authority  is  in  favor  of 
making  the  blanket  insurance  float  with  the  loss. 
It  started  out  with  the  declaration  that:     "The  policy 


144  THE  APPORTIONMENT  OP  LOSS  AND 

expressly  states  how  its  liability  shall  be  deter- 
mined. The  question  becomes  one  of  contract  con- 
struction. It  is  not  one  of  equitable  determination 
in  the  absence  of  an  agreement."  And  it  quoted  the 
contribution  clause  in  support  of  this  doctrine. 
Finally  it  wound  up  by  saying:  "In  the  present 
case  it  matters  not  to  the  assured,  and  little  to  the 
insurers,  what  order  of  adjustment  is  adopted.  The 
order  first  indicated,  to-wit.  that  of  the  greatest 
losses,  is  one  which,  as  a  general  rule,  has  some  con- 
siderations in  its  favor.  In  this  case  it  works  out 
substantial  equity  and  justice  to  all  concerned.  We 
therefore  select  it  for  the  purpose  of  this  case,  as,, 
on  the  whole,  the  best."  This  looks  very  much  like 
treating  it  as  a  case  of  "equitable  determination  in 
the  absence  of  an  agreement." 

While  blindfolded  Justice  was  endeavoring  to  hold 
the  scales  evenly  balanced,  she  was  also  blinded  to 
the  inconsistency  between  the  two  conflicting  theo- 
ries upon  which  this  decision  was  predicated. 

The  result  of  the  decision  worked  out  as  follows: 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  145 


CO   M    rj< 

la  >,  ^ 


5S5 


U3   >>  iH 
tH  CO    CO 


o      c^ 
C  00 


O  0)0 

•2  o^» 


laia 

•rt*iO 

oe<) 

'«l<r-l 

«*»• 

00  tH 

r-ir-i 

-* 

r-> 

€/> 

2       '«l^r-l       la 


rHrH        C<l 


OO 

OO 


If,  however,  the  specific  policies  in  this  case  had 
been  reduced  20  per  cent.,  and  the  general  policies 
had  been  $40,000,  then  on  the  same  basis  the  insur- 
ance on  machinery  would  have  made  a  salvage  of 
$720.41,  that  on  brewery  a  salvage  of  $518.48,  while 
the  Insurance  on  stock  and  the   blanket  insurance 


146 


THE  APPORTIONMENT  OP  LOSS  AND 


would  have  been  exhausted,  and  the  assured  would 
have  come  short  of  indemnity  $204.68,  as  follows: 


b^ 

«D 

^  aJ  xii 

CO 

&Ph 

CO 

<D 

e        ** 

^ 

U 

W    00 

iri 

c^f* 

«o 

M  0> 
^  00 
TO    f- 


"wo 

C  CO 


PL,    tH        OS 


o 

•♦J 


eo 

NO 

CO 

COO 

OOO 

-*o 

«»■ 

t-o 

<MO 

•* 

«e- 

rH        pL, 


oo 
oo 
oo 


S 


Working  out  the  last  example  on  the  basis  of  the 
general  insurance  floating  with  the  loss,  we  have: 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  147 


^.     ^ 


^•>       CO 


Oi 

OJ    Cd 

oi 

f^    rH-^ 

CO 

<D 

at        «=> 

CO 

00 

M  .  t^ 

LO 

"^  w  o 

1^- 

C  CO 

o  1 

M 

Tt*" 

iH 

«9- 

00 

<M 

00 

tH 

KJ    "^^ 

C<J* 

^CO 

o 

^^l 

t- 

Ph  -^ 

cT 

^      - 

o 

-M 

W      o 

iH 

o 

Oi 

^  '-^ 

(M* 

2  «> 

(M 

5  "* 

CO 

M       « 

tH 

o 

tH 

«(9- 

ot 

o 

ii  o^ 

o 
o 

ftO    rfH  rto 

'St" 

1 

CO  CI 

«ooo 
ooo 


i 

Ph 


oo 
oo 
oo 


B 

B 
m 


This  gives  the  specific  policies  a  salvage  of  3.41 
per  cent.,  and  the  blanket  a  salvage  of  2.27  per  cent, 
after  having  fully  indemnified  the  assured.  In  strik- 
ing contrast  with  the  same  example  worked  out  by 
the  method  adopted  by  the  Supreme  Court  of  Errors 
of  Connecticut. 


148 


THE  APPORTIONMENT  OF  LOSS  AND 


Making  the  blanket  insurance  float  with  the  loss 
does  not  invariably  produce  satisfactory  results, 
however,  as  the  following  examples  will  demonstrate: 
Company  A  insures  $40,000  on  stock;  Company  B 
$20,000  on  machinery;  Company  C  $10,000  on  stock 
and  machinery.  Loss  on  stock  $1,000,  and  on  ma- 
chinery $20,100. 


o 

^5 


CO 


OOlOCO 


o      o 
H  ooo 


0)  0)  C 


6  6  6 

OOO 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  149 

Reduce  the  loss  $1,000  in  the  proportions  of  $900 
on  stock  and  $100  on  machinery,  and  we  have  the 
anomaly  of  thereby  increasing  the  loss  of  Company 
C  about  $150,  as  follows: 


r-i  Oi 


o 

TJHIO 

o 

LO"^ 

o 

LC  ''f 

o 

COCO 

(M 

of  CO 

«9- 

«^ 

iA 

Ui 

<D 

O-f 

c 

0(M 

2 

§ 

do 

OlO 

O^C3i 

s 

«^ 

0>        iH 

OS       o 

00        tH 

OS 

d 

o 

ee- 

««• 

M 

o     «o 

o 

o 

O        OS 

d     i>^ 

m 

o     o 

O       ""i^ 

d" 

«9- 

OSOOffO 

CS-XHU5 

00  US  US 

OSlOrt< 

W€0 

co"?©" 

m 

«»■ 

d 

■*-> 

o 

ooo 

H 

ooo 

ooo 

ddo" 

a>  <D  irt 


150  THE  APPORTIONMENT  OF  LOSS  AND 


As  Mr.  Rice  facetiously  expresses  it,  **A  really 
bright  adjuster,  perhaps,  would  find  Company  C's 
salvage  by  magnifying  the  loss"  It  is  not,  therefore, 
of  such  comprehensiveness  and  universal  applicabil- 
ity as  to  render  it  infallible. 

The  system  advocated  in  such  a  masterly  manner 
by  the  late  Mr.  E.  P.  Rice,  before  the  Fire  Under- 
writers' Association  of  the  Northwest,  does  appear 
to  me  to  be  well  worthy  of  study  and  analysis,  and 
I  commend  it  to  the  attention  of  all  those  who  take 
an  interest  in  this  subject  as  being  based  upon  sound 
principles  and  appearing  to  be  of  universal  applica- 
bility. At  least,  I  have  applied  it  to  a  great  number 
of  cases,  with  uniformly  satisfactory  results,  except 
in  one,  and  in  that  instance  Mr.  W.  O.  Robb  pointed 
out  that  I  had  misapplied  Mr.  Rice's  method,  it 
bein^  a  case  of  double  non-concurrency,  and  in  which 
Mr.  Rice  intended  to  apply  his  rule  in  the  first  in- 
stance to  the  non-concurrent  items  and  then  go  back 
with  the  unexhausted  compound  insurance  to  the 
item  covered  by  all  the  other  policies.  I  found  that 
the  fault  had  been  in  me  and  not  in  Mr.  Rice's  rule. 
This  restored  my  confidence  in  its  universal  applica- 
tion, and  I  believe  it  affords  a  solution  of  this  diffi- 
cult question  on  scientific  principles.  The  principal 
objection  that  I  have  heard  to  its  general  adoption 
is  that  it  is  diflacult  of  application,  but  this  is  more 
fancied  than  real.  A  little  practice  will  soon  famil- 
iarize the  student  with  its  operation  and  render  it 
easy  of  application.  It  is  based  upon  the  subdivision 
of  the  blanket  insurance  so  as  to  make  it  cover  upon 
the  several  items  and  contribute  with  the  specific  in 
the  proportion  of  the  over-insurance  on  each,  distrib- 
uted according  to  the  maximum  over-insurance, 
which  is  ascertained  by  deducting  the  loss  on  each 
item  from  the  sum  of  the  blanket  insurance  and  the 
specific  insurance  on  that  item.  The  last  two  of  the 
foregoing  examples  worked  out  by  Mr.  Rice's  rule 
will  demonstrate  that  diminishing  the  loss  in  the 
ratios  used  in  those  examples  will  result  in  a  corre- 
sponding reduction  in  the  amounts  assessed  upon  the 
several  insurances — specific  and  compound — instead 
of  the  glaring  inequalities  produced  in  those 
examples : 


CONTRIBUTION  OP  COMPOUND  INSURANCE.  151 


O 


6^35^ 


oo 
oo 
oo 


oo 
oo 
oo 


p 

w3 

II 

II 

o< 

pqo 

6  6 
OO 

6  d 
OO 

152  THE  APPORTIONMENT  OP  LOSS  AND 

The  specific  insurance  on  stock  is  $40,000,  to  which 
is  added  the  compound  insurance,  $10,000,  making 
$50,000,  and  deducting  therefrom  the  loss  on  stock, 
$1,000,  gives  the  maximum  over  insurance  on  stock 
$49,000.  The  specific  insurance  on  machinery  is 
$20,000,  to  which  add  the  compound  insurance,  $10,- 
000,  making  $30,000,  and  deducting  therefrom  the 
loss  on  machinery,  $20,100,  gives  the  maximum  over 
insurance  on  machinery  $9,900.  The  entire  insur- 
ance being  $70,000  and  the  entire  loss  $21,100,  the 
aggregate  over  insurance  is  $48,96o,  which  being 
divided  in  proportions  of  the  maximum  over  insur- 
ance on  each  item,  gives  over  insurance  on  stock 
$40,680.81  and  on  machinery  $8,219.19.  Add  the  loss 
on  each  item  to  each  of  these  amounts,  will  give  the 
insurance  on  stock  $41,680.81  and  on  machinery  $28,- 
319.19.  The  specific  insurance  on  each  item  being 
given,  the  difference  between  it  and  the  sum  of  the 
insurance  gives  the  compound  insurance  applying  to 
the  item. 

Reducing  the  loss  $1,000,  viz.:  $900  on  stock  and 
$100  on  machinery: 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  153 


C^  y-i 

O 

^CD 

C^O 

o 

O?^ 

ai<z> 

o 

CiO 

U5  --ti 

o 

r^00 

W9- 

tHOO 

««- 

-^krt 

oco 

o 

CD 

od 
oco 
oco 

•-^  o  ,h" 

^ 

o"oo 

o 


«3^ 


oo 
oo 
oo 


oo 
oo 

oo 


a  a; 
<!0 


d  c 


154 


THE  APPORTIONMENT  OF  LOSS  AND 


Resulting  in  a  reduction  of  loss  to  Company  A  of 
$63.78,  Company  B  $76.28,  and  Company  C  $64.05. 
Examples  might  be  multiplied  indefinitely,  but  I  am 
conscious  of  having  infringed  upon  your  space  al- 
ready, and  I  will  trespass  upon  your  indulgence  no 
further  than  to  give  an  example  of  the  application  of 
Mr.  Rice's  rule  to  Griswold's  Statement  No.  19,  which 
appears  to  have  given  that  indefatigable  writer  no 
little  difficulty: 


ooo 
ooo 
ooo 


t-t  O    CO 


355 


II 

r-i  CO 

S  ^ 

U  i^   i-, 

PP  o 

S  S  !=! 

ooo 
ooo 

ooo 


M  W  W  Oi 

<U  <D  <U  O 
^   fn  U   f~> 

P  P  p  :=i 
vi  VI  m  VI 

B  B  B  B 

6  6  6  6 
OOOO 


CONTRIBUTION  OP  COMPOUND  INSURANCE.  155 

This  being  a  case  of  double  non-concurrency  and 
Companies  B,  C  and  D  covering  on  items  not  covered 
by  Company  A,  the  loss  on  flour  and  grain  is  first 
apportioned  upon  the  three  former  companies  and 
then  they  go  back  with  their  unexhausted  amounts 
and  contribute  with  Company  A  to  make  good  the 
loss  on  pork. 


O"* 

ooo 

m 

c-q  t- 

>i 

00  tH 

r>, 

CO  1-1 

^ 

(M 

€«• 

.  coo 
in  ooo 
C  oo 


OC  1-1 


i-IO 


m 

«oas<?qo 

>. 

«>T-ia5C<i 

d 

iH  LOCO  to 

u 

■<*1  ■>*  Tfl  Tf 

€«- 

s 

s 

:3 

oooo 

rn 

oooo 

m 

oooo 

c 

lOlO  LCU5 

o 


6  6  6  6 
OOOO 


3^ 


§c 


CO    Hi  ^ 

^30 


0^0 

10  LO 


o  00 

o  00 

o  oo_^ 

o  laia 


M    CO  1-1  U5  0 
.   >»   coo  CO  C5 


i  O  CO  tH  CO 

>      ^    OCO  r-lU5 
'  OT    O  C<i  Cvl  10 
C    ooc*  t- 
H    O  COOOCQ 
LOC^fi-i  M 


d  6 
00 


PO 


<JMOQ 


oooo 

oooo 


156  THE  APPORTIONMENT  OF  LOSS  AND 

Thus  giving  each  an  equitable  share  of  the  salvage 
and  neither  paying  more  than  the  proportion  which 
the  sum  insured  by  it  bears  to  the  aggregate  insur- 
ance. 

I  trust  that  my  mite  may  tend  to  shed  a  ray  of 
light  upon  a  question  of  interest  to  the  fraternity. 

A.  R.  Manning. 

APPORTIONMENT    OF    LOSS    BY    RICE'S    RULE. 
Reply  by  W.   H.  Daniels  to  A.   R.  Manning's  Discus- 
sion of  Apportionment  of  Loss  by  Rice's  Rule. 
Editor  "Rough  Notes":  September    7,    1905. 

The  communication  of  A.  R.  Manning,  of  Cleveland, 
Ohio,  which  was  published  in  the  "Rough  Notes"  of 
July  6,  1905,  in  which  he  discusses  and  applies  dif- 
ferent rules  for  the  apportionment"  of  non-concur- 
rent insurance,  has  been  very  thoroughly  considered 
by  me,  because  I  was  at  that  time  investigating 
and  experimenting  with  the  rule  advocated  by  E.  F. 
Rice,  of  Cincinnati,  Ohio,  in  a  paper  read  by  him 
in  1880  before  the  members  of  the  Fire  Under- 
writers' Association  of  the   Northwest. 

I  contend  now,  as  I  have  urged  on  several  occasions 
in  the  past,  that  the  apportionment  of  non-concurrent 
insurance  is  an  important  question,  and  the  insur- 
ance companies  for  several  good  and  practical 
reasons,  should  co-operate  and  adopt  some  rule  for 
general  use. 

I  have  read,  with  considerable  interest,  what  Mr. 
Manning  says  in  the  first  stanza  of  his  communica- 
tion regarding  the  practice  of  some  adjusters  in 
selecting  a  rule  and  applying  the  same  for  the  appor- 
tionment of  non-concurrent  insurance.  He  says, 
after  referring  to  my  communication  of  April  20th 
last,  "I  heartily  concur  in  his  hope  that  the  discus- 
sion of  this  vexed  question  may  lead  to  the  adoption 
by  most  of  the  fire  insurance  companies  doing 
business  in  the  United  States  of  a  rule  for  the 
apportionment  of  losses  under  non-concurrent  poli- 
cies, instead  of  leaving  the  question  to  be  wrangled 
over  by  the  adjusters,  each  contending  for  the 
method  that  will  best  subserve  the  interests  of  the 
company  represented  by  him,  for  the  occasion,  and 
finally  compromised  or  settled  by  a  majority  vote, 
contrary  to  the  convictions  of  those  who  may  have 
advocated  a  more  logical  rule  to  govern  the  case  in 
question."  I  regret  that  my  experience  cornpels  me 
to  admit  that  what  Mr.  Manning  says  in  his  com- 
munication about  the  methods  adopted  by  some  ad- 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  157 

justers,  in  applying  a  rule  for  the  apportionment  of 
non-concurrent  insurance,  is  true.  An  adjuster  who 
is  governed  in  selecting  the  rule  to  apply  in  these 
cases,  by  the  way  its  application  will  effect  the 
interest  of  the  company  or  companies  he  represents, 
and  applies  th§  rule  which  is  the  most  beneficial 
to  his  companies,  because  it  reduces  the  amount  of 
loss  to  be  paid  by  them,  is  not  honest.  For  this  class 
of  adjusters,  what  is  needed  is  not  so  much  the 
adoption  of  a  rule  for  general  use  in  the  apportion- 
ment of  non-concurrent  insurance  as  actual  practice 
in  doing  business  honestly.  They  should  learn  to 
do  business  with  due  respect  for  and  appreciation 
of,  the  rights  of  others — be  governed  by  integrity 
and  principle  and  not  by  greed  for  money,  and  be 
consistent.  The  adjuster  who  insists  on  applying 
in  a  particular  case  the  rule  which  benefits  most 
the  company  or  companies  he  represents,  and  in  some 
other  case  would  apply  another  rule  because  it  was 
to  the  advantage  financially  of  his  company  or  com- 
panies, is  not  properly  qualified  to  act  as  an  ad- 
juster, and  his  case  is  one  which  needs  heroic 
treatment  by  his  employer. 

In  1880  E.  F.  Rice,  then  an  adjuster  for  the  ^tna 
Insurance  Company,  and  residing  in  Cincinnati, 
Ohio,  read  a  paper  at  the  meeting  of  the  Fire  Under- 
writers'  Association  of  the  Northwest,  on  the  subject 
of  apportionment  of  non-concurrent  insurance.  In 
his  paper,  after  criticising  several  other  rules,  he 
advocated  the  use  of  a  rule  which  has  been  named 
"Rice's  Rule."  He  applies  his  rule  to  a  complicated 
adjustment  problem,  and  to  understand  the  rule,  it 
is  necessary  to  thoroughly  study  the  application  of 
it  as  made  by  Mr.  Rice. 

The  explanation  of  the  rule  as  made  by  Mr.  Rice, 
with  the  statement  of  loss  and  insurance,  and  the 
application  of  the  rule  as  shown  in  detail  in  the 
paper  read  by  Mr.  Rice,  as  stated  herein,  is  as 
follows : 

"The  loss,  if  any,  for  which  the  general  policy 
alone  is  held,  having  been  satisfied,  the  apportion- 
ment  of  the  insurance  remaining  under  that  policy 
should  be  made  to  the  several  subjects  insured  in 
the  proportion  which  the  maximum  over-insurance 
upon  each  item  bears  to  the  aggregate  over-insurance 
on  all  collectively.  Under  such  an  apportionment 
an  increase  of  loss,  though  disproportionately  made, 
will  increase  the  share  of  each  company,  and  a  de- 
crease of  loss  will  decrease  the  share  of  each  com- 


158 


THE  APPORTIONMENT  OF  LOSS  AND 


pany.  The  apportionment  is  made  with  reference 
to  the  existence  of  other  insurance  applicable  to  the 
payment  of  those  losses. 

"To  illustrate  what  seems  to  me  the  only  correct, 
legal  and  equitable  method  of  apportioning  this 
class  of  cases,  I  borrow  the  following  examples  from 
the  "Insurance  Times,"  of  September,  1879,  pages 
595  and  605,  only  substituting  letters  for  Roman 
numerals  in  indicating  the  subjects  insured: 


c  c  c  c 

oooo 


w  o  o 


o 


fl  c  c: 
o  o  o 
ooo 

USOO 


m  m  m 
o)  (D  a; 
^H  t^  ^- 
3  ?  P 
m  tn  m 
CSC 


-<PQOOO 
>%>>>,>>>» 

c  c  c  c  c 

cj  d  cC  c^  (X 
A  P<  P<  P<  & 

aasss 

o  o  o  o  o 
UOOOO 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  159 

"It  is  evident  that  the  aggregate  loss  is  $175  less 
than  the  aggregate  insurance,  and  that  Co.  A  alone 
covers  the  loss  on  P,  $125,  which  loss  is  satisfied 
by  that  company  before  proceeding  to  an  apportion- 
ment of  the  other  losses.  If  the  policies  of  A  and  B, 
which  are  now  concurrent,  were  added  to  the  insur- 
ance under  policy  C  (of  $50)  upon  M,  we  should 
h^ve  a  maximum  insurance  of  $900  to  pay  the  M  loss 
of  $500,  or  an  over-insurance  of  $400.  If,  however, 
these  policies  were  applied  with  C's  $200  to  the  pay- 
ment of  the  N  loss  of  $375,  the  over-insurance  would 
be  $675;  or,  similarly  applied  with  the  $200  specifi- 
cation of  C's  policy  to  the  payment  of  the  O  loss  of 
$250,  the  over-insurance  upon  this  item  would  be 
$800.  But  the  actual  aggregate  over-insurance  is  only 
$175;  therefore  an  apportionment  of  the  over-insur- 
ance would  give  $37.33  to  the  M  loss,  $63  to  the  N 
loss,  and  $74.67  to  the  O  loss,  or  the  whole  amount 
of  insurance  applicable  to  the  payment  of  the  sev- 
eral losses  would  be: 

$537.33  insurance  to  pay  a  loss  of $500 

438.00  insurance  to  pay  a  loss  of 375 

324.67  insurance  to  pay  a  loss  of 250 


$1,300.00  .  $1,125 

The  apportionments  of  losses  to  insurance 
would  be: 

Loss  on  M,   $500 — 

Company  A  insures $358.33  and  pays  $333.43 

Company  B  insures.  .  . .' 129.00  and  pays    120.04 

Company  C  insures 50.00  and  pays      46.53 

$537.33  $500.00 

Loss  on  N,  $375 — 

Company  A  insures $175.00  and  pays  $149.83 

Company  B  insures 63.00  and  pays      53.94 

Company  C  insures 200.00  and  pays    171.23 

$438.00  $375.00 

Loss  on  O,  $250 — 

Company  A- insures $91.67  and  pays    $70.59 

Company  B  insures 33.00  and  pays      25.41 

Company  C  insures 200.00  and  pays    154.00 

$324.67  $250.00 

Loss  on  P,  $125 — 
Company  A  insures $125.00  and  pays  $125.00 

You  will  notice  when  you  begin  to  study  the  solu- 
tion of  this  adjustment  problem  made  by  Mr.  Rice, 
that  he  sets  aside  $125  of  policy  A,  which  is  a  com- 
pound policy  covering  on  M,  N,  O  and  P,  and  the 
only  one  covering  on  P,  to  pay  the  loss  of  $125  on 
P.     The  rule  he  has  applied  is  the  "Cromie  Rule." 


160  THE  APPORTIONMENT  OF  LOSS  AND 

This  rule  was  made  by  Chief  Justice  Marshall  of 
the  Kentucky  Supreme  Court,  in  the  case  of  Cromie 
vs.  The  Kentucky  and  Louisville  Mutual  Insurance 
Company,  decided  about  fifty  years  ago.  This  decis- 
ion is  in  15  B.  Monroe  (Ky.)  432. 

The  Cromie  Rule. 

"When  the  compound  insurance  covers  property 
which  is  not  covered  by  the  specific  insurance,  a 
portion  of  the  compound  insurance  equal  to  the 
amount  of  loss  on  this  property  must  be  set  aside  to 
pay  this  loss.  The  remainder  of  the  compound 
insurance  contributes  with  the  specific  to  pay  the 
loss  on  the  property,  covered  by  the  specific  insur- 
ance. If  the  loss  on  the  property  covered  only  by  the 
compound  insurance  is  equal  to  or  greater  than 
the  compound  insurance,  this  insurance  will  be  ex- 
hausted and  there  will  be  nothing  to  contribute  from 
to  help  out  the  specific  insurance." 

Mr.  Rice  has  explained  fully  how  he  obtains  what 
he  calls  the  maximum  over-insurance,  and  it  is  on 
M,  $400,  on  N,  $675  and  on  O,  $800,  making  a 
total  maximum  over-insurance  on  M,  N  and  O  of 
$1,875.  The  actual  insurance  in  excess  of  the  actual 
loss  is  $175,  This  actual  over-insurance  of  $175  is 
apportioned  to  items  M,  N  and  O  in  the  ratio  that 
the  maximum  over-insurance  on  each  of  the  three 
items  bears  to  the  total  maximum  over-insurance  on 
all  three  items.  This  gives  item  M  400/1,875  of 
$175,  which  is  $37.33 — this  amount  added  to  $500, 
the  amount  of  loss  on  M,  makes  the  total  insurance 
covering  on  M  $537.33.  Item  N  would  have  675/1,875 
of  $175,  which  is  $63.00 — add  to  this  amount  the 
loss  on  N  of  $375,  makes  the  total  insurance  covering 
on  N  $438.  Item  O  would  be  entitled  to  800/1,875 
of  $175,  which  is  $74.67 — this  amount  plus  the  loss 
on  O  of  $250,  makes  the  total  insurance  covering 
on  O  $324.67. 

Policy  A  covers  $750  on  M,  N,  O  and  P.  The  loss 
on  P  is  $125  and  $125  of  policy  A  has  been  set  aside 
to  pay  the  loss  on  P.  This  leaves  $625  of  policy  A 
covering  on  M,  N  and  O — policy  B  has  $225  on  M, 
N  and  O,  which  makes  a  total  insurance  of  $850  on 
M,  N  and  O. 

We  have  shown  that  the  total  insurance  on  M  is 
$537.33.  Policy  C  has  $50  specific  insurance  on  M, 
and  this  deducted  from  $537.33  leaves  $487.33  insur- 
ance on  M  in  policies  A  and  B.  Mr.  Rice  makes 
625/850   of  $487.33   the  insurance  in   policies   A  and 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  161 


B  on  M,  or  $358.33  as  the  insurance  in  policy  A  cov- 
ering on  M.  He  also  makes  225/850  of  $487.33  the 
insurance  in  policies  A  and  B  on  M,  or  $129  as  the 
insurance  on  policy  B  covering  on  M.  The  insurance 
on  M,  on  N  and  on  O  in  companies  A  and  B  is  made 
specific  in  the  ratio  that  the  insurance  in  each  com- 
pany covering  on  M,  N  and  O  bears  to  the  total  in- 
surance in  companies  A  and  B  covering  on  M,  N  and 
O.  I  ask  you  to  carefully  investigate  the  method 
adopted  by  Mr.  Rice  in  apportioning  the  compound 
insurance  between  the  companies  on  each  item  of 
property  covered.  I  have  explained  it  in  detail. 
When  I  call  your  attention  to  the  application  of 
"Rice's  Rule,"  to  Mr.  Griswold's  statement  No.  19 
as  made  by  Mr.  Manning  in  his  communication,  I 
will  recall  how  the  compound  insurance  was  appor- 
tioned by  Mr.  Rice. 

It  does  not  seem  to  me  as  if  it  were  necessary  for 
Mr.  Rice  to  use  the  "Cromie  Rule'*  in  the  solution 
of  this  adjustment  problem.  I  believe  the  principle 
of  the  rule  he  used  is  broad  enough  to  take  care  of 
an  item  which  is  covered  only  by  one  of  the  com- 
pound policies. 

The  maximum  insurance  in  companies  A,  B  and  C, 
covering  on  M,  is  $1,025.  The  loss  on  M  is  $500, 
which  deducted  from  $1,025,  leaves  a  maximum  over- 
insurance  of  $525.  The  maximum  insurance  in  com- 
panies A,  B  and  C,  covering  on  N,  is  $1,175.  Deduct 
from  $1,175  the  maximum  insurance  on  N,  $375  the 
loss  on  N,  gives  a  maximum  over-insurance  on  N  of 
$800.  The  maximum  insurance  in  companies  A,  B 
and  C  covering  on  O,  is  $1,175.  The  loss  on  O  is 
$250,  which  deducted  from  $1,175,  leaves  a  maximum 
over-insurance  of  $825.  The  maximum  insurance  on 
P  is  $750  and  the  loss  is  $125,  leaving  a  maximum 
over-insurance  of  $625.  The  actual  over-insurance  is 
$175,  which  distributed  to  the  four  items  of  property 
in  the  ratio  that  the  maximum  over-insurance  on 
each  item  bears  to  $2,775,  the  maximum  over-insur- 
ance on  all  items,  gives  M  $33.11,  N  $50.45,  O  $52.03 
and  P  $39.41.  These  several  items,  added  to  the 
loss  on  each  item  gives  us  a  total  insurance  on  each 
item  as  follows 

Insurance  on  item  M,  $533.11,  to  pay  a  loss  of $500 

Insurance  on  item  N,     425.45,  to  pay  a  loss  of 375 

Insurance  on  item  O,     302.03,  to  pay  a  loss  of 250 

Insurance  on  item  P,     164.41,  to  pay  a  loss  of 125 

Total  insuranace  of  $1,425.00,  to  pay  a  loss  of. $1,250 

11 


162  THE  APPORTIONMENT  OF  LOSS  AND 

The  insurance  on  P  is  shown  to  be  $164.41,  which 
deducted  from  $750,  the  amount  of  policy  A,  leaves 
$589.59  covering  on  M,  N  and  O.  Policy  B  covers 
^225  on  M,  N  and  O.  It  is  necessary  to  deduct 
$164.41,  the  amount  of  insurance  company  A  has  on 
item  P,  from  $750,  the  amount  of  the  policy,  before 
•apportioning  the  compound  insurance  on  items  M, 
K  and  O  to  the  two  companies,  A  and  B.  If  we  did 
not  do  it,  the  insurance  apportioned  to  company  A 
might  be  more  than  $585.59.  Company  A  would  carry 
58,559/81,059  of  the  compound  insurance  on  each  item 
and  company  B  would  carry  22,500/81,059  of  the  com- 
pound insurance  on  each  item. 

The  apportionment  of  the  compound  insurance  to 
items  and  the  apportionment  of  the  loss  on  each 
item  would  be: 

Loss  on  M,  $500 — 

Company  A  insures $349.01  and  pays  $327.33 

Company  B  insures 134.10  and  pays  125.77 

Company  C  insures 50.00  and  pays  46.90 

Total   insuranace  of $533.11          pays  ~$500T00 

Loss  on  N,   $375 — 

Company  A  insures $162.87  and  pays  $143.56 

Company  B  insures 62.58  and  pays  55.16 

Company  C  insures 200.00  and  pays  176.28 

Total    insurance    of $425745          pays  $375.00 

Loss  on  O,  $250 — 

Company  A  insures $73.71  and  pays  '     $61.01 

Company  B  insures 28.32  and  pays         23.44 

Company  C  insures 200.00  and  pays       165.55 

Total    insurance    of $302. OT        pays  "$250.00 

Loss  on  P,  $125 — 

Company  A  insures $164.41  and  pays     $125.00 

Total    insurance    of "$164.41  pays     $125.00 

Company  A  insures  on  M $349.01  and  pays  $327.33 

Company  A  insures  on  N 162.87  and  pays  143.56 

Company  A  insures  on  0 73.71  and  pays  61.01 

Company  A  insures  on  P 164.41  and  pays  125.00 

Total    insurance    of $750.00          pays  $656.90 

^Company  B  insures  on  M $134.10  and  pays  $125.77 

^Company  B  insures  on  N 62.58  and  pays  55.16 

♦Company  B   insures   on   0 28.32  and  pays  23.44 

Total    insurance    of $2^25.00          pays  $204.37 

Company  C  insures  on  M $50.00  and  pays  $46.90 

Company  C  insures  on   N 200.00  and  pays  176.28 

Company   C   insures  on   0 200.00  and  pays  165.55 

Total    insurance    of $450.00          pays  $388.73 

Company  A  insures $750.00  and  pays     $656.90 

Company  B  insures 225.00  and  pays       204.37 

Company  C  insures 450.00  and  pays       388.73 

Total    insurance    of $1,425.00  pays  $1,250.00 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  163 

I  think  it  advisable  to  treat  this  adjustment  prob- 
lem as  I  have,  and  distribute  the  actual  over-insur- 
ance to  all  items  covered  by  the  insurance.  In  other 
words,  it  appears  to  me  to  be  entirely  unnecessary 
to  use  the  "Cromie  Rule"  in  this  case,  as  Mr.  Rice 
has  done,  for  his  rule,  as  I  have  shown,  takes  care 
of  every  item.  The  application  of  "Rice's  Rule"  to 
this  problem  would  indicate  that  it  is  a  good  rule. 

Mr.  Rice  did  not  give  in  the  paper  he  read  before 
the  members  of  the  Fire  Underwriters'  Association 
of  the  Northwest,  his  rule  for  apportionment  of  non- 
concurrent  insurance.  We  are  therefore  compelled 
to  develop  his  rule  from  the  application  of  it,  made 
by  him  to  an  adjustment  problem,  and  this  I  have 
attempted  to  do. 

Mr.  Manning,  in  his  communication,  gives,  as  he 
says,  "an  example  of  the  application  of  Mr.  Rice's 
rule  to  Griswold's  statement  No.  19,  which  appears 
to  have  given  that  indefatigable  writer  no  little  diffi- 
culty. 


164 


THE  APPORTIONMENT  OF  LOSS  AND 


ooo 

ooo 
ooo 


O  O   TO 

g  c  a 


235 


Eo! 

i=!  C  C  S 

o  o  o  c 
ooo<= 
ooo<: 
oo_^o< 


M  w  w  w 

CU  (D  (D  <D 

(->  (^  U  i^ 

P  P  P  P 

W  Cfl  M  M 

.S  .S  .S  -S 

6  6  6  6 
OOOO 


"This  being  a  case  of  double  non-concurrency  and 
companies  B,  C  and  D  covering  on  items  not  covered 
by  company  A,  the  loss  on  flour  and  grain  is  first 
apportioned   upon   the   three  former   companies   and 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  165 


then  they  go  back  with  their  unexhausted  amounts 
and  contribute  with  company  A  to  make  good  the  loss 
on  pork. 


CO-* 

o 

,-l05 

O 

t-rHrHrfi 

Pays. 

$882.3 
2,117.6 

o 

iHOO 

o 

«D«0«Ot- 

o 

c^'t-^ 

d 

m 

«5c?5  0sd 

o 

■^UD 

o 

b 

«OrHT-ICq 

o 

C»tH 

o 

d 

THU3lf3«D 

CO 

tHCO* 

lO 

.P4 

V^-^-TiT 

co- 

t/B- 

€/3- 

«e- 

too 

co 

t-o 

t- 

s 

eoC> 

CO 

too 

«o 

oooo 

OT    MO 

CO 

«5d 

ZD 

oo>oo 

00 

tHO 

tH 

dxSSS 

o 

050 

05^ 

S 

oooo 

(nTio 

t-^ 

OQUS 

t>^ 

oooo^ 

«^ 

ae- 

60- 

ae- 

lOlOlOLO 

<JWOP 

6  6  d  6 
OOOO 


3^ 


30 


00 
00 
00 


00 
00 
00 


0 

0 

0 

0 

0 

0^ 

t-t-05  t- 

U3 

00 

«5  0JO(M 

€/9- 

S 

d,Hiod 

COOCOOi 

^*  CJ 

rHTlH^lO« 

0 
0 

^ 

"^'m  T-Ti-i" 
69- 

0 

C 

0" 

0 

tH 

to 

se- 

J 

OtOiHCO 
OCOtHUO 

m 

dcqcvjui 

a 

OoO-'^t- 

M 

ooooocq^ 

Qfq 

d  d 
00 


Po 

d  d 
00 


<lWOfi 

d  d  d  d 
OOOO 


"Thus  giving  each  an  equitable  share  of  the  salvage 
and  neither  paying  more  than  the  proportion  which 


166 


THE  APPORTIONMENT  OP  LOSS  AND 


the  sum  insured  by  it  bears  to  the  aggregate  insur- 
ance." 

If  you  will  carefully  examine  the  application  of 
"Rice's  Rule,"  as  made  by  Mr.  Manning  to  Griswold's 
statement  No.  19,  you  will  see  that  before  he  takes 
up  the  apportionment  of  the  loss  on  pork,  he  suc- 
ceeds in  applying  the  rule  correctly  to  a  proposition 
like  this: 

oo 
oo 
oo 


=1 

o  g 


35 


o  o  o 


ooo^ 

n  03  CQ 

0)  (U  (U 
U  U  i^ 

3  p  P 

CO  02  CQ 

.S.2-3 
PQOQ 

>.!>»>> 

c  c  c 
BBS 

O  O  Q 


If  Mr.  Griswold's  statement  No.  19,  so  far  as  insur- 
ance and  loss  are  concerned,  had  involved  only  flour 
and  grain,  then  the  way  Mr.  Manning  has  handled 
it,  as  to  loss  on  flour  and  grain,  would  be  correct. 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  167 

Company  A  covered  only  on  pork,  consequently  it 
did  not  contribute  from  more  than  its  face — that  it, 
$5,000.  Company  B  is  made  to  contribute  from  $5,000 
on  flour  and  from  $2,882.36  on  pork,  or  from 
$7,882.36,  when  its  policy  was  issued  for  $5,000. 
Company  C  issued  a  policy  for  $5,000,  but  it  is  made 
to  contribute  from  $6,842.11.  Company  D,  with  a 
$5,000  policy,  is  made  to  contribute  from  $2,083.33 
on  flour,  $2,916.67  on  grain  and  $2,275.53  on  pork, 
making  a  total  of  $7,275.53.  In  making  each  of  these 
three  $5,000  policies  contribute  from  considerably 
more  than  their  face,  Mr.  Manning  has  applied  the 
principle  advocated  by  the  Supreme  Court  of  Errors 
of  Connecticut,  in  the  case  of  Schmaelzle  v.  London 
and  Lancashire  Fire  Ins.  Co.,  where  $55,000  insur- 
ance was  made  to  contribute  from  $117,880.55.  Mr. 
Manning  refers  in  his  communication  to  this  case 
and  does  not  speak  as  if  he  approved  of  the  rule 
applied  by  the  court. ,  In  fact,  Mr.  Manning  criticises 
the  decision  made  by  the  Connecticut  court.  If  Mr. 
Manning  has  applied  "Rice's  Rule"  to  Mr.  Griswold's 
statement  No.  19,  he  has,  in  my  opinion,  demon- 
strated that  it  is  not  a  good  rule. 

There  are  in  this  problem  three  items  covered  by 
the  insurance — pork,  flour  and  grain.  The  maximum 
insurance  on  pork  is  $20,000,  because  four  $5,000 
policies  cover  on  pork.  Deduct  from  this  $20,000 
the  maximum  insurance  on  pork,  the  loss  on  pork 
of  $10,000  gives  a  maximum  over-insurance  of 
$10,000.  The  maximum  insurance  on  flour  is  $10,000 
in  companies  B  and  D — each  covers  for  $5,000  on 
flour  and  other  items.  Take  $3,000,  the  loss  on  flour 
from  $10,000,  the  maximum  insurance  on  flour,  leaves 
$8,000  as  the  maximum  over-insurance  on  flour.  The 
maximum  insurance  on  grain  is  $10,000,  being  a 
$5,000  policy  in  each  company,  C  and  D.  This  $10,000^ 
the  maximum  insurance  on  grain,  reduced  $5,000,  the 
loss  on  grain,  leaves  $5,000  as  the  maximum  over- 
insurance  on  grain. 

The  maximum  insurance  on  any  item,  it  seems  to 
me  is  the  full  amount  that  could  be  made  to  contrib- 
ute to  pay  a  loss  on  the  item.  In  this  case  if  the 
loss  was  all  on  pork  and  was  $20,000  or  more,  the 
four  companies  would  pay  a  total  loss.  In  other 
words,  there  is  $20,000  of  insurance  that  could  be 
called  on  to  pay  a  loss  on  pork.  There  is  $10,000  of 
Insurance  that  could  be  made  to  pay  a  loss  on  flour 


168 


THE  APPORTIONMENT  OP  LOSS  AND 


and  also  $10,000  that  could  be  made  to  pay  a  loss  on 
grain.  If  I  am  correct  as  to  what  maximum  insur- 
ance means,  we  would  get  the  following  results: 


^1 


3c 


oooo 
oooo 
oooo 


C  fl  C3  C 
^  ^  c^  ^ 

ssss 

oooo 

oooo 


oo 
oo 
oo 


c  c 

ftp- 

ss 

o  o 

oo 


oo 
oo 
oo 


OP 

>>>> 

d  d 
ftft 

BB 
o  o 

oo 


The    total    maximum    over-insurance    is    shown    to 
be  $22,000.     In  making  the  distribution  of  the  actual 


CONTRIBUTION  OP  COMPOUND  INSURANCE.  169 

over-insurance,  we  get  10,000/22,000  of  $2,000  or 
$909.09  as  covering  on  pork.  Add  to  $909.09,  the  loss 
on  pork  of  $10,000,  gives  us  a  total  insurance  on 
pork  of  $10,909.09.  We  have  7,000/22,000  of  $2,000, 
the  actual  over-insurance,  or  $636.36  covering  on 
flour.  Add  $3,000,  the  loss  on  flour,  to  $636.36,  gives 
$3,636.36  as  the  total  insurance  on  flour.  The  loss 
on  grain  is  $5,000,  which  added  to  5,000/22,000  of 
$2,000,  the  actual  over-insurance,  or  $454.55,  gives 
us  $5,454.55  as  the  total  insurance  on  grain. 

We  now  have  the  total  insurance  covering  on  each 
of  the  three  items  of  property  described  in  the  poli- 
cies. Mr.  Rice  made  the  compound  insurance  specific 
in  the  ratio  that  the  amount  of  each  compound 
policy  bore  to  the  amount  of  all  the  compound  insur- 
ance covering  the  property.  The  distribution  can 
not  be  made  on  this  basis  if  there  is  any  specific 
insurance.  For  instance,  there  are  four  $5,000  poli- 
cies covering  pork.  One-fourth  of  $10,909.09,  the 
insurance  on  pork,  is  $2,727.27.  As  company  A  has 
$5,000  specific  insurance  on  pork,  we  must  get  the 
amounts  companies  B,  C  and  D  cover  on  pork  in  some 
other  way.  There  are  two  $5,000  compound  policies 
covering  on  flour.  There  is  $3,636.36  insurance  on 
flour,  which  divided  on  the  basis,  the  amount  of 
each  of  the  two  policies  bears  to  the  amount  of  the 
two  policies,  gives  $1,818.18  as  the  amount  each  com- 
pany— B  and  D — insure  on  flour.  Company  B  covers 
$5,000  only  on  pork  and  flour,  consequently  that  part 
of  it  which  does  not  cover  on  flour  must  cover  on 
pork.  By  deducting  $1,818.18,  the  insurance  on  flour, 
from  $5,000,  the  amount  of  the  policy  issued  by 
company  B,  leaves  $3,181.82  as  the  amount  this 
company  covers  on  pork.  We  have  two  $5,000  com- 
pound policies  covering  on  grain.  The  total  insur- 
ance on  grain  is  $5,454.55,  which,  divided  on  the 
basis,  the  amount  of  each  policy  bears  to  the  amount 
of  both  policies,  gives  $2,727.28  of  one  policy  and 
$2,727.27  of  the  other,  covering  on  grain.  Company 
C  covers  $5,000  only  on  pork  and  grain,  consequently 
that  part  of  it  not  covering  on  grain  must  cover  on 
pork.  If  we  deduct  $2,727.28,  the  amount  of  policy 
issued  by  company  C  covering  on  grain,  we  get 
$2,272.72  as  the  amount  company  C  covers  on  pork. 
Company  D  covers  on  pork,  flour  and  grain.  We  have 
ascertained  that  this  company  covers  $1,818.18  on 
flour  and  $2,727.27  on  grain,  consequently  the  differ- 
ence between  $4,545.45,  the  amount  this  company 
covers  on  flour  and  grain  and  $5,000,  the  amount  of 


170 


THE  APPORTIONMENT  OP  LOSS  AND 


the  policy,  which  is  $454.55,  is  the  insurance  company 
D  covers  on  pork. 

The  schedule  of  insurance  and   apportionment  of 
claim  is  as  follows: 


OO 

£ 

oo 

OO 

d 

oo 

n 

LOlO 

c 

c;i(M 

«e- 

a 

00  t- 

C<1<M 

t> 

t- t- 

p 

(MCvJ 

V2 

t-C- 

fl  (M(M 


o    'Z'  "2; 


TjiCOCOt- 

coeocoto 

1 

6 

$4,583 

2,916 

2,083 

416 

^ 

Ocqcqifl 

OOO  t-U3 

C 

34      $5,000 

66  3,181 
33        2,272 

67  454 

HO 

$4,583 
4,416 
4,583 
4,416 

CM 

OOOO 

oooo 

OOOO 

lO  lO  U5  LO 

<^ ' 


6  6  6  6 
OOOO 


CONTRIBUTOIN  OP  COMPOUND  INSURANCE.  171 

An  examination  of  the  results  obtained  by  my  ap- 
plication of  "Rice's  Rule"  shows  that  the  percentage 
of  loss  paid  by  each  company  is  as  follows: 

Company  A 90926  per  cent. 

Company  B 88333  per  cent. 

Company  C 90926  per  cent. 

Company  D 88333  per  cent. 

The  greatest  difference  between  the  percentages 
paid  is  .02593  per  cent. 

It  must  not  be  assumed  that  "Rice's  Rule"  always 
produces  such  results,  that  each  policy  pays  about 
the  same  percentage  of  the  loss. 

In  a  communication  published  in  "Rough  Notes" 
of  April  20,  1905,  wherein  I  discussed  a  rule  for  the 
apportionment  of  compound  insurance,  used  by  Wil- 
lis O.  Robb,  of  New  York,  I  said: 

After  this  examination  of  the  two  rules,  the  ques- 
tion very  naturally  arises:  How  generally  can  they 
be  used?  In  my  attempt  to  determine  the  matter,  T 
applied  them  to  an  assumed  case,  and  I  found  that 
both  rules  were  failures  when  applied  to  the  follow- 
ing assumed  adjustment  problem.  I  give  herein  the 
assumed  case  and  explain  the  results  as  obtained  by 
me  when  applying  the  two  rules  as  I  understand 
them: 

Statement. 

Sound  Specific 

Value.  Loss.  Insurance 

Stock    $59,000  $1,000  $40,000 

Machinery 21,000  20,000  20,000 

Totals    $80,000  $21,000  $60,000 

Compound  insurance  on  stock  and  machinery  $10,000 


Total    insurance    $70,000 

If  we  apply  Mr.  Robb's  rule  for  the  apportionment 
on  the  basis  of  the  losses,  we  would  divide  $70,000, 
the  total  insurance,  by  $21,000,  the  total  loss,  which 
would  give  us  a  percentage  of  insurance  to  loss  of 
3.333333  plus,  which,  multiplied  by  the  loss  on  stock 
of  $1,000,  gives  $3,333.33  as  the  total  specific  and 
compound  insurance  on  stock.  This  rule  applied  to 
machinery  gives  us  $66,666.67  as  the  total  specific 
and  compound  insurance  on  machinery.  The  specific 
insurance  on  stock  being  $40,000,  the  application  of 
this  rule  would  transfer  $36,666.67  of  this  specific 
insurance   from    stock   to    machinery.      It   would    be 


172  THE  APPORTIONMENT  OP  LOSS  AND 


impossible  to  change  the  insurance  after  the  fire 
and  make  any  part  of  the  $40,000  specific  insurance 
on  stock  cover  on  machinery. 

If  we  make  the  apportionment,  according  to  Mr. 
Robb's  rule,  on  the  basis  of  the  sound  values,  we 
would  divide  the  total  insurance  of  $70,000  by  the 
total  sound  value  of  $80,000,  and  it  gives  us  a  per- 
centage of  insurance  to  sound  value  .875,  which,  mul- 
tiplied by  $21,000,  the  sound  value  of  machinery, 
gives,  as  the  total  specific  and  compound  insurance 
on  machinery,  $18,275.  This  rule  applied  to  stock 
gives  $51,625  as  the  total  specific  and  compound 
insurance  on  stock.  The  specific  insurance  on  ma- 
chinery being  $20,000,  the  effect  of  applying  this 
rule  would  be  to  transfer  $1,725  of  the  specific  insur- 
ance from  machinery  to  stock.  It  would  be  impos^ 
sible  to  do  this  after  the  fire. 

Mr.  Robb  says,  when  speaking  of  the  application 
of  the  rules:  "*  *  *  So  that,  whenever  possible, 
and  as  nearly  as  possible,  the  ratio  of  insurance  to 
loss  (or  value)  shall  be  the  same  on  all  items." 

The  rules  used  by  Mr.  Robb  were  intended  to  make 
each  policy  pay  the  same  or  about  the  same  per- 
centa.sje  of  the  loss.  I  applied  his  rules  to  this  as- 
sumed case  to  show  their  defects.  If  we  apply 
"Rice's  Rule"  to  this  adjustment  problem,  we  will 
get  a  total  of  $41,694.91  insurance,  covering  on  stock, 
to  pay  a  $1,000  loss.  The  percentage  of  loss  paid  on 
stock  would  be  .023983  plus.  This  rule  gives  us  $28,- 
305.09  as  the  total  insurance  on  machinery  to  pay  a 
loss  of  $20,000.  The  percentage  of  loss  paid  on  ma- 
chinery is  .706586  plus. 

The  percentage  of  loss  paid  by  each  company  is 
as  follows:  • 

Specific  insurance   on   stock 023983  per  cent. 

Specific  insurance  on  machinery....  .706586  per  cent. 
Compound    insurance    on    stock    and 

machinery 590892  per  cent. 

In  this  case  the  greatest  difference  between  the 
percentages  of  loss  paid  is  .682603  per  cent. 

I  have  applied  "Rice's  Rule"  to  several  adjust- 
ment problems  for  the  purpose  of  testing  it,  and  so 
far  it  has  proved  much  more  satisfactory  than  I  an- 
ticipated. If  I  understand  the  rule  and  apply  it  cor- 
rectly, then  so  far  as  my  experience  goes,  the  rule 
produces  satisfactory  results.  W.  H.  Daniels. 


CONTRIBUTION  OP  COMPOUND  INSURANCE.  173 

"Rice-Daniels'    Rule." 

I  have  taken  Rice's  Rule  and  made  changes  in  it 
which  in  my  judgment  greatly  improves  it.  I  have 
applied  this  new  version  of  Rice's  Rule  to  several 
adjustment  problems  to  illustrate  its  work  and  ex- 
plain its  application. 

A.  R,  Manning,  adjuster  of  Cleveland,  Ohio,  gave 
the  above  name  to  this  rule,  and,  speaking  of  the 
rule,  he  says: 

"Mr.  Daniels,  however,  has  elaborated  a  most  in- 
genious method  of  apportioning  the  liability  upon  the 
several  policies,  in  cases  of  non-concurrent  blankets, 
after  the  insurance  applicable  to  the  payment  of  the 
losses  upon  the  several  items  of  the  policies  shall 
have  been  determined  by  'Rice's  Rule,*  and  it  ap- 
pears to  clothe  'Rice's  Rule'  with  universal  and  un- 
varying application  to  a  problem  which  has  taxed 
the  best  faculties  of  the  votaries  of  fire  insurance  to 
their  utmost  in  the  attempt  to  formulate  a  satisfac- 
tory solution  of  an  important  question.  It  is  at 
least  deserving  of  study  on  the  part  of  the  fire  insur- 
ance adjusters,  and  the  earnest  consideration  of  the 
managers  of  the  fire  insurance  companies.  I  trust 
that  it  will  receive  the  attention  it  merits,  and  that 
it  will  result  in  the  adoption  of  a  rule  that  will  in 
future  avoid  the  inconsistencies  to  which  we  have 
been  subjected." 

The  above  statement  having  been  made  by  a  man 
of  unquestionable  ability  and  who  has  had  many 
years'  experience  in  adjusting  fire  losses,  leads  me 
to  think  that  in  the  changes  which  I  have  made 
in  "Rice's  Rule,"  in  my  application  of  the  same,  I 
may  have  "Builded  better  than  I  thought." 

In  this  rule  I  use  a  part  of  a  letter  published  in 
"Rough  Notes"  on  September  7,  1905,  for  the  reason 
that  the  letter  shows  the  difference  between  the 
working  of  "Rice's  Rule"  and  the  one  I  give  here. 

In  1880,  E.  F.  Rice,  then  an  adjuster  for  the  Aetna 
Insurance  Company,  and  residing  in  Cincinnati,  Ohio, 
read  a  paper  at  the  meeting  of  the  Fire  Underwriters^ 
Association  of  the  Northwest,  on  the  subject  of  appor- 
tionment of  non-concurrent  insurance.  In  his  paper, 
after  criticising  several  other  rules,  he  advocated  the 
use  of  a  rule  which  has  been  named  "Rice's  Rule.'* 
He  applies  his  rule  to  a  complicated  adjustment  prob- 
lem, and  to  understand  the  rule,  it  is  necessary  to 
thoroughly  study  the  application  of  it  as  made  by 
Mr.  Rice. 


174  THE  APPORTIONMENT  OF  LOSS  AND 


The  explanation  of  the  rule  as  made  by  Mr.  Rice, 
with  the  statement  of  loss  and  insurance,  and  the 
application  of  the  rule  as  shown  in  detail  in  the 
paper  read  by  Mr.  Rice,  is  as  follows: 

"The  loss,  if  any,  for  which  the  general  policy 
alone  is  held,  having  been  satisfied,  the  apportionment 
of  the  insurance  remaining  under  that  policy  should 
be  made  to  the  several  subjects  insured  in  the  pro- 
portion which  the  maximum  over-insurance  upon 
each  item  bears  to  the  aggregate  over-insurance  upon 
all  collectively.  Under  such  an  apportionment  an 
increase  of  loss,  though  disproportionately  made,  will 
increase  the  share  of  each  company,  and  a  decrease 
of  loss  will  decrease  the  share  of  each  company.  The 
apportionment  is  made  with  reference  to  the  existence 
of  other  insurance  applicable  to  the  payment  of  those 
losses. 

Problem   No.   1. 

"To  illustrate  what  seems  to  me  the  only  correct, 
legal  and  equitable  method  of  apportioning  this  class 
of  cases,  I  borrow  the  following  examples  from  the 
"Insurance  Times,"  of  September,  1879,  pages  595 
and  605,  only  .substituting  letters  for  Roman  numer- 
als in  indicating  the  subjects  insured: 

The  Insurances  are : 
Company  A  insures  $750  on  M,  N,  O  and  P. 
Company  B  insures    225onM,  NandO. 
Company  C  insures      50  on  M. 
Company  C  insures    200  on  N. 
Company  C  insures    200  on  O. 


The  Losses  are: 

OnM $500 

OnN 375 

OnO 250 

OnP....    125 

Losses . 

.$1,250 

$1,425  Insurance  to  pay. 

"It  is  evident  that  the  aggregate  loss  is  $175  less 
than  the  aggregate  insurance,  and  that  Company  A 
alone  covers  the  loss  on  P,  $125,  which  loss  is  satis- 
fied by  that  company  before  proceeding  to  an  appor- 
tionment of  the  other  losses.  If  the  policies  of  A 
and  B,  which  are  now  concurrent,  were  added  to  the 
insurance  under  policy  C  (of  $50)  upon  M,  we 
should  have  a  maximum  insurance  of  $900  to  pay 
the  M  loss  of  $500,  or  an  over-insurance  of  $400.  If, 
however,  these  policies  were  applied  with  C's  $200 
to  the  payment  of  the  N  loss  of  $375,  the  over-insur- 
ance would  be  $675;  or,  similarly  applied  with  the 
$200  specification  of  C's  policy  to  the  payment  of  the 
O  loss  of  $250,  the  over-insurance  upon  this  item 
would  be  $800.  But  the  actual  aggregate  over-insur- 
ance is  only  $175;  therefore  an  apportionment  of  the 
over-insurance  would  give  $37.33  to  the  M  loss,  $63 


CONTRIBUTION  OF  COMPOUND  INSURANCE  175 

to  the  N  loss,  and  $74.67  to  the  O  loss,  or  the  whole 
amount  of  insurance  applicable  to  the  payment  of 
the  several  losses  would  be: 


.33  insurance  to  pay  a  loss  of $500 

438.00  insurance  to  pay  a  loss  of 375 

324.67  insurance  to  pay  a  loss  of 250 

$1,300.00  $1,125 

The  apportionments  of  losses  to  insurance  would  be: 

Loss  on  M^   $500 — 

Company   A   insures $358.33  and  pays  $333.43 

Company   B   insures 129.00  and  pays  120.04 

Company   C   insures 50.00  and  pays  46.53 

$537.33  $500.00 

Loss  on  N,  $375 — 

Company  A  insures $175.00  and  pays  $149.83 

Company  B   insures 63.00  and  pays       53.94 

Company   C   insures 200.00  and  pays     171.23 

$438.00  $375.00 

Loss  on  O,   $250 — 

Company  A  insures $   91.67  and  pays  $   70.59 

Company   B   insures 33.00  and  pays        2  5.41 

Company   C   insures 200.00  and  pays     154.00 

$324.67  $250.00 

Loss  on  P,  $125 — 
Company  A   insures $125.00  and  pays  $125.00 

You  will  notice  when  you  begin  to  study  the  solu- 
tion of  this  adjustment  problem  made  by  Mr.-  Rice, 
that  he  sets  aside  $125  of  policy  A,  which  is  a  com- 
pound policy  covering  on  M,  N,  O  and  P,  and  the 
only  one  covering  on  P,  to  pay  the  loss  of  $125  on  P. 
The  rule  he  has  applied  is  the  "Cromie  Rule."  This 
rule  was  made  by  Chief  Justice  Marshall  of  the  Ken- 
tucky Supreme  Court,  in  the  case  of  Cromie  vs.  The 
Kentucky  and  Louisville  Mutual  Insurance  Company, 
decided  about  fifty  years  ago.  This  decision  is  in  15 
B.  Monroe  (Ky.)  432. 

The  Cromie  Rule. 

"When  the  compound  insurance  covers  property 
which  is  not  covered  by  the  specific  insurance,  a  por- 
tion of  the  compound  insurance  equal  to  the  amount 
of  loss  on  this  property  must  be  set  aside  to  pay  this 
loss.  The  remainder  of  the  compound  insurance  con- 
tributes with  the  specific  to  pay  the  loss  on  the  prop- 
erty covered  by  the  specific  insurance.  If  the  loss  on 
the  property  covered  only  by  the  compound  insurance 
is  equal  to  or  greater  than  the  compound  insurance, 
this  insurance  will  be  exhausted  and  there  will  be 
nothing  to  contribute  from  to  help  out  the  specific 
insurance." 


176  THE  APPORTIONMENT  OP  LOSS  AND 

Mr.  Rice  has  explained  fully  how  he  obtains  what 
he  calls  the  maximum  over-insurance,  and  it  is  on  M, 
$400,  on  N,  $675,  and  on  O,  $800,  making  a  total 
maximum  over-insurance  on  M,  N  and  O  of  $1,875. 
The  actual  insurance  in  excess  of  the  actual  loss  is 
$175.  This  actual  over-insurance  of  $175  is  appor- 
tioned to  items  M,  N  and  O  in  the  ratio  that  the 
maximum  over-insurance  on  each  of  the  three  items 
bears  to  the  total  maximum  over-insurance  on  all  of 
the  three  items.  This '  gives  item  M  400/1,875  of 
$175,  which  is  $37.33;  this  amount  added  to  $500,  the 
amount  of  loss  on  M,  makes  the  total  insurance  cov- 
ering on  M  $537.33.  Item  N  would  have  675/1,875 
of  $175,  which  is  $63;  add  to  this  amount  the  loss  on 
N  of  $375,  makes  the  total  insurance  covering  on  N 
$438.  Item  O  would  be  entitled  to  800/1,875  of  $175, 
which  is  $74.67;  this  amount  plus  the  loss  on  O  of 
$250,  makes  the  total  insurance  covering  on  O  $324.- 
67. 

Policy  A  covers  $750  on  M,  N,  O  and  P.  The  loss 
on  P  is  $125,  and  $125  of  policy  A  has  been  set  aside 
to  pay  the  loss  on  P.  This  leaves  $625  of  policy  A 
covering  on  M,  N  and  O.  Policy  B  has  $225  on  M, 
N  and  O,  which  makes  a  total  insurance  of  $850  on 
M,  N  and  0. 

We.  have  shown  that  the  total  insurance  on  M  is 
$537.33.  Policy  C  has  $50  specific  insurance  on  M, 
and  this  deducted  from  $537.33  leaves  $487.33  insur- 
ance on  M  in  policies  A  and  B.  Mr.  Rice  makes 
625/850  of  $487.33  the  insurance  in  policies  A  and  B 
on  M,  or  $358.33  as  the  insurance  in  policy  'A  cover- 
ing on  M.  He  also  makes  225/850  of  $487.33  the  in- 
surance in  policies  A  and  B  on  M,  or  $129  as  the 
insurance  in  policy  B  covering  on  M.  The  insurance 
on  M,  on  N  and  on  O  in  companies  A  and  B  is  made 
specific  in  the  ratio  that  the  insurance  in  ea<jh  com- 
pany covering  on  M,  N  and  O  bears  to  the  total  in- 
surance in  companies  A  and  B  covering  on  M,  N  and 
O.  I  ask  you  to  carefully  investigate  the  method 
adopted  by  Mr.  Rice  in  apportioning  the  compound 
insurance  between  the  companies  on  each  item  of 
property  covered.     I  have  explained  it  in  detail. 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  177 

Problem   No.  2. 

Mr.  Manning,  in  his  communication,  gives  an  ex- 
ample of  the  application  of  Mr.  Rice's  rule  to  Gris- 
wold's  statement  No.  19,  which  is  as  follows: 


ooo 
ooo 
ooo 


«=5  s  s 

o  o  o 

m  xn  m 

m  m  m 
OOO 

u 

O 
J:!  S  c 

§§^ 

o  o  o  o 

fl  c  c  c 
o  o  o  o 

OOoO 
OOoO 

oo_oO 

vi  m  ifi  m 

o  o  <u  o 

u  u  u  ^ 

P  :3  3  p 

W  W  «2  M 

C  C  c  .S 

6  6  6  6 
OOOO 


12 


178         .  THE  APPORTIONMENT  OF  LOSS  AND 

Mr.  Manning  says:  "This  being  a  case  of  double 
non-concurrency  and  companies  B,  C  and  D  covering 
on  items  not  covered  by  company  A,  the  loss  on  flour 
and  grain  is  first  apportioned  upon  the  three  former 
companies  and  then  they  go  back  with  their  unex- 
hausted amounts  and  contribute  with  company  A  to 
make  good  the  loss  on  pork." 


M    coo 

o 
o 

tHOO 

O 

o 

Pays 
4,166.67 
4,519.61 
4,519.61 
4,620.74 

^  C<I  t- 
CO    OOtH 
pL|    OOiH 

o 
o 
o 

CO 

rH  CO 

o 
o 

in 

coo 
coo 

03    coo 

C  ooo 

04  Ud 


1^ 


!^ 


CO 

t-o 

t- 

CO 

500 

«o 

CO 

MJO 

«o 

oo 

rHO 

o 

o>o^ 

p 

«e- 

«» 

««- 

s 

«  J^ 


■5  oooo 
oooo 
oooo 


s 


•9-  *^ 


<1PQOp 


oooo 
OOOO 


-    OiHWco 
CO    «OOCOOS 


oo 
oo 
oo 


oo 
oo 
oo 


66 

oo 


fio 
86 


o 


.  0(^^<Mu^ 


<iWop 

6  6  6  6 
OOOO 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  179 

Company  covered  only  on  pork,  consequently  it 
did  not  contribute  from  more  than  its  face — that  is, 
$5,000.  Company  B  is  made  to  contribute  from  $5,- 
000  on  flour  and  from  $2,882.36  on  pork,  or  from 
$7,882.36,  when  its  policy  was  issued  for  $5,000.  Com- 
pany C  issued  a  policy  for  $5,000,  but  it  is  made  to 
contribute  from  $6,842.11.  Company  D,  with  a  $5,- 
000  policy,  is  made  to  contribute  from  $2,083.33  on 
flour,  $2,916.67  on  grain,  and  $2,275.53  on  pork,  mak- 
ing a  total  of  $7,275.53.  In  making  each  of  these  three 
$5,000  policies  contribute  from  considerably  more 
than  their  face,  Mr.  Manning  has  applied  the  princi- 
ple advocated  by  the  Supreme  Court  of  Errors  of 
Connecticut,  in  the  case  of  Schmaelzle  vs.  London 
and  Lancashire  Fire  Ins.  Co. 

In  the  case  of  Schmaelzle  vs.  London  &  Lancashire 
Fire  Ins.  Co.,  decided  January  7,  1903,  by  the  Su- 
preme Court  of  Errors  of  Connecticut,  53  Atlantic 
Reporter,  841,  the  court  made  $55,000  compound  in- 
surance contribute  from  $117,880.55.  It  is  assumed 
by  the  court  in  this  case  that  a  policy  can  legally  be 
made  to  contribute  for  loss  or  damage  caused  at  one 
time  for  an  amount  largely  in  excess  of  the  insur- 
ance named  in  the  policy.  The  principle  which  is  the 
foundation  of  this  decision  is  that  the  limitation  of 
the  amount  a  company  may  be  compelled  to  contrib- 
ute from  in  the  payment  of  a  loss  is  not  the  insur- 
ance named  in  the  policy  and  for  which  the  consid- 
eration only  was  given. 

In  this  case  the  compound  insurance  was  made  to 
contribute  with  the  specific  from  its  full  amount  on 
the  item  which  had  the  largest  loss.  The  amount  of 
the  compound  insurance  remaining,  after  paying  the 
loss  on  this  item,  contributes  with  the  specific  on  the 
item  of  the  policy  which  has  the  second  largest  loss. 
This  plan  of  contribution  is  continued  until  the  losses 
are  paid  or  the  compound  insurance  is  exhausted. 
The  principle  which  the  decision  in  this  case  is  based 
on,  is  not  changed  because  of  not  using  the  English 
or  Albany  rules,  which  make  the  compound  insur- 
ance contribute  with  the  specific  in  its  full  amount 
on  each  item,  or  because  of  not  making  the  compound 
insurance  contribute  first  with  the  specific,  to  pay 
the  loss  on  the  item  of  the  policy  which  is  the  least 
damaged,  or  because  the  compound  insurance  is  not 
made  to  contribute  with  the  specific  and  pay  the  loss 
on  the  items  as  they  are  set  forth  in  the  policy  form. 
"Rice's  Rule,"  as  applied  to  Griswold's  statement  No. 
19  by  Mr.  Manning,  makes  $15,000  compound  insur- 


180  THE  APPORTIONMENT  OF  LOSS  AND 

, ki: . 

ance  contribute  from  $22,000,  and  for  this  reason  I 
do  not  consider  the  rule  a  good  one. 

Rule. 

First — Separate  the  damaged  or  destroyed  property 
covered  by  all  policies  into  as  many  items  or  divi- 
sions as  is  necessary,  because  of  the  non-concurrent 
insurance.  Each  item  or  division  of  property  cov- 
ered by  specific  and  compound  insurance  and  that  is 
not  covered  by  all  the  compound  insurance,  must  be 
handled  separately. 

Second — Ascertain  the  maximum  insurance  on  each 
item  or  division  of  property.  Maximum  insurance 
on  any  item  or  division  of  property,  means  the  total 
insurance  which  could  be  made  to  contribute  to  pay 
a  loss  thereon. 

Third — When  the  property  is  separated  into  items 
or  divisions,  ascertain  the  loss  or  damage  on  each. 

Fourth — If  the  loss  or  damage  is  on  only  one  of  the 
items  or  divisions  of  property,  all  of  the  insurance — 
maximum  insurance — covering  it  must  contribute  to 
pay  the  claim. 

Fifth — Deduct  the  loss  on  each  item  or  division  of 
property  from  the  maximum  insurance  thereon,  and 
the  remainder  will  be  the  maximum  over-insurance. 

Sixth — Deduct  the  total  loss  or  damage  on  all  items 
or  divisions  of  property  from  the  total  insurance 
thereon,  and  the  remainder  will  be  the  actual  over- 
Insurance.  Apportion  the  actual  over-insurance  to 
each  item  or  division  of  property  on  the  following 
basis — that  is,  as  the  maximum  over-insurance  on 
each  item  or  division  of  property  bears  to  the  maxi- 
mum over-insurance  on  all  of  them. 

Seventh — Add  the  loss  or  damage  on  each  item,  or 
division  of  property,  to  the  actual  over-insurance  ap- 
portioned to  each,  and  the  amount  obtained  will  be 
the  total  insurance — compound  and  specific-^covering 
thereon  which  must  contribute  to  pay  the  different 
claims. 

Eighth — The  specific  insurance  on  any  item,  or 
division  of  property,  must  be  deducted  from  the  total 
insurance  thereon  to  ascertain  the  amount  of  the 
compound  insurance  which  must  be  apportioned  to 
the  companies. 

Ninth — If  two  or  more  companies  cover  an  item  or 
division  of  property — one  or  more  specific,  and  the 
other  one  compound — the  remainder,  after  deducting 


CONTRIBUTION   OP  COMPOUND  INURANCE.   181 

the  specific  from  the  total  insurance  thereon,  would 
be  the  amount  the  compound  policy  covered  on  the 
item  or  division. 

Tenth — Apportion  the  compound  insurance  in  each 
company  to  the  different  items  or  divisions  of  prop- 
erty in  the  ratio  that  the  compound  insurance  on 
each  item  or  division  bears  to  the  total  compound 
Insurance  on  all  items  or  divisions  of  property  cov- 
ered by  the  policy.  If  under  the  first  apportionment 
of  the  compound  insurance  to  companies  the  total 
insurance  on  some  item  or  division  is  too  large,  it 
will  be  too  small  on  some  other  item  or  division. 
The  excess  insurance  may  be  on  one  item  or  division 
and  the  shortage  on  two  or  more  of  them;  the  con- 
ditions may  be  the  reverse  of  this,  and  the  excess 
and  shortage  of  insurance  may  both  be  on  more  than 
one  item  or  division  of  property. 

Eleventh — If  there  is  an  excess  and  a  shortage  of 
insurance  on  different  items  or  divisions  of  property 
after  the  first  apportionment  of  the  compound  insur- 
ance to  companies,  a  re-apportionment  of  the  com- 
pound insurance  on  items  or  divisions  where  there 
is  an  over-insurance  must  be  made.  The  over-insur- 
ance in  companies  carrying  the  compound  insurance 
is  apportioned  from  the  items  or  divisions  of  prop- 
erty on  which  they  cover  where  there  is  an  excess 
of  insurance,  to  the  items  or  divisions  on  which  they 
cover,  where  there  is  a  shortage  in  the  ratio  that  the 
insurance  in  each  company,  on  each  item  or  division, 
under  the  first  apportionment  of  insurance  to  com- 
panies, bears  to  the  total  of  said  compound  insurance 
thereon. 

Twelfth — Apportion  the  loss  and  damage  on  each 
item  and  division  of  property  to  each  company  cover- 
ing thereon  in  the  ratio  that  the  amount  of  insurance 
In  each  company  on  the  item  or  division  bears  to  the 
total  insurance  thereon. 

Problem    No.  3. 

Company  A  covers  on  M,  N.  O  and  P $  750 

Company  B  covers  on  M,  N  and  0 225 

Company  C  covers  on  M 50 

Company  C  covers  on  N 200 

Company  C  covers  on  0 200 

Total    Insurance    $1,425 

Loss   on   M $    500 

Loss    on   N 375 

Loss    on    0 250 

Loss    on    P 125 

Total  loss    $1,250 


182  THE  APPORTIONMENT  OF  LOSS  AND 

This  Is  my  solution  of  Problem  No.  1,  by  omitting 
the  use  of  the  "Cromie  Rule,"  which  was  used  by 
Mr.  Rice.  It  is  not  necessary  to  use  the  "Cromie 
Rule"  in  the  solution  of  the  adjustment  problem 
which  I  have  called  "Problem  No.  1." 

The  maximum  insurance  in  companies  A,  B  and 
C,  covering  on  M,  is  $1,025.  The  loss  on  M  is  $500, 
which,  deducted  from  $1,025,  leaves  a  maximum  over- 
insurance  of  $525.  The  maximum  insurance  in  com- 
panies A,  B  and  C,  covering  on  N,  is  $1,175.  Deduct 
from  $1,175,  the  maximum  insurance  on  N,  $375,  the 
loss  on  N,  gives  a  maximum  over-insurance  on  N  of 
$800.  The  maximum  insurance  in  companies  A,  B 
and  C,  covering  on  O,  is  $1,175.  The  loss  on  O  is 
$250,  which,  deducted  from  $175,  leaves  a  maximum 
over-insurance  of  $825.  The  maximum  insurance  on 
P  is  $750  and  the  loss  is  $125,  leaving  a  maximum 
over-insurance  of  $625.  The  actual  over-insurance  is 
$175,  which  distributed  to  the  four  items  of  property 
in  the  ratio  that  the  maximum  over-insurance  on 
each  item  bears  to  $2,775,  the  maximum  over-insur- 
ance on  all  items,  gives  M  $33.11,  N  $50.45,  O  $52.03, 
and  P  $39.41.  These  several  items,  added  to  the  loss 
on  each  item,  gives  us  a  total  insurance  on  each  item 
as  follows: 

Insurance  on  item  M,  $533.11,  to  pay  a  loss  of $  500 

Insurance  on  item  N,  $425.45,  to  pay  a  loss  of. .... .  375 

Insurance  on  Xtem  O,  $302.03,  to  pay  a  loss  of 250 

Insurance  on  item  P,  $164.41,  to  pay  a  loss  of 125 

Total  insurance  of  $1,425,  to  pay  a  loss  of $1,250 

The  insurance  on  P  is  shown  to  be  $164.41,  which 
deduqted  from  $750,  the  amount  of  policy  A,  leaves 
$589.59  covering  on  M,  N  and  O.  Policy  B  covers 
$225  on  M,  N  and  O.  It  is  necessary  to  deduct  $164,- 
41,  the  amount  of  insurance  company  A  has  on  item 
P,  from  $750,  the  amount  of  the  policy,  before  appor- 
tioning the  compound  insurance  on  items  M,  N  and 
O  to  the  two  companies,  A  and  B.  If  we  did  not  do 
it,  the  insurance  apportioned  to  company  A  might 
be  more  than  $585.59.  Company  A  would  carry  58,- 
559/81,059  of  the  compound  insurance  on  each  item, 
and  company  B  would  carry  22,500/81,059  of  the  com- 
pound insurance  on  each  item. 

The  apportionment  of  the  insurance  to  items  and 
the  apportionment  of  the  loss  on  each  item  would  be: 


CONTRIBUTION  OF  COMPOUND  INSURANCE.   183 


m 

t 

^ 

00  coo 

^U3  0i 

COtH 

vi- 

T-l  l«  tH 


U5        W'-^CO 


o 

00Tt*O 

co 

cooo 

««■ 

w- 

o 

CO 

o 

o 

CO 

CO 
CO 

«»• 

ee- 

©U50 


s    ... 

1  I  •  •  • 

2.'  o  o  o 


OlOO 
lO(MO 


o 
o 

ooo 
ooo 

0U30 

IOC<10 

t>c<icq 

M- 

««■ 

<lPQO 


«'  o  o  o 

vooo 


odd 


O 


184  THE  APPORTIONMENT  OF  LOSS  AND 

Company  A  insures  on  M....$    348.41  and  pays  $  327.48 

Company  A  insures   on  N....       161.71  and  pays  143.12 

Company  A   insures   on   O.  .  .  .         76.84  and  pays  62.72 

Company   A   insures   on   P....       163.04  and  pays  125.00 


Total    insurance   of $    750.00         pays  $    658.32 

Company  B  insures  on  M....$    133.55  and  pays  $    125.53 
Company  B  insures   on   N.  .  .  .         61.99  and  pays  54.87 

Company  B   insures   on   O....         29.46  and  pays  24.04 

Total    insurance   of $    225.00         pays  $    204.44 

Company  C  insures  on  M $      50.00  and  pays  $      46.99 

Company  C  insures  on  N. . . .       200.00  and  pays        177.01 
Company   C   insures   on   O....       200.00  and  pays        163.24 

Total    insurance   of $    450.00         pays  $    387.24 

Company  A  Insures $    750.00  and  pays  $    658.32 

Company  B   insures 225.00  and  pays        204.44 

Company  C  insures. 450.00  and  pays        387.24 

Total   insurance   of $1,425.00         pays  $1,250.00 

I  think  it  advisable  to  treat  this  adjustment  prob- 
lem as  I  have,  and  distribute  the  actual  over-insur- 
ance to  all  items  covered  by  the  insurance.  In  other 
words,  it  appears  to  me  to  be  entirely  unnecessary 
to  use  the  "Cromie  Rule"  in  this  case. 

Mr.  Rice  did  not  give,  in  the  paper  he  read  before 
the  members  of  the  Fire  Underwriters'  Association 
of  the  Northwest,  his  rule  for  appportionment  of  non- 
concurrent  insurance.  We  are  therefore  compelled 
to  develop  his  rule  from  the  application  of  it  made 
by  himself  and  others  to  adjustment  problems,  and 
this  I  have  attempted  to  do. 

Problem  No.  4. 

I  will  now  apply  the  rule  which  I  am  using  to 
tJriswold's  Statement  No.  20: 

•Company  A  covers  flour  and  lard $  5,000 

•Company  B  covers  flour  and  grrain 5,000 

♦Company  C  covers  pork  and  grain 5,000 

Total  insurance $15,000 

Loss    on    flour $  3,500 

Loss    on    pork 2,000 

Loss   on  grain 5,000 

Loss   on   lard 3,000 

Total  loss    $13,500 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  185 


c3 
P4 


5  o 
:>      o 

o 
o 

OO 
OO 

o 
o 

o 
o 

z>     o 

5        O 

:>      o 

IOCS 

o 

o 

ITS 

oo 

OO 

lata 

o 
o 
o 

o 
o 

o      cq 

rHrH 

CO 
&9- 

CO 

g         CO 

00  CO 

^ 

I— I— 

"•^ 

o 

o      c- 

1-H  t- 

05 

C<IC<I 

LO 

o 

-I      (>q 

00  C^ 

o 

t-t- 

TtH 

o 

0      t- 

THt- 

Oi 

CqiM 

tn 

o 

H        <M 

00  (NI 

o 

t- t- 

•^ 

o 

0        N 

r-l(M 

'Tt* 

cq  M 

lO 

LO 

» 

oe- 

«e- 

se- 

«e- 

<  > 


oo 
oo 
oo 


oo 


B 

p      .      .      .  . 

X  J.     J.     ;■• 

J    cu    El 


mo 


•5  o  o 

goo 


o 


186  THE  APPORTIONMENT  OF  LOSS  AND 

Company  A  insures  on  lard $3,181.82  pays  $3,000.00 

Company  A  insures  on  flour 1,818.18  pays     1,555.55 

Totals    ...$5,000.00  $4,555.55 

Company  B  insures  on  flour $2,272.73  pays  $1,944.45 

Company  B  insures   on  grain 2,727.27  pays     2,500.00 

Totals    $5,000.00  $4,444,45 

Company  C  insures  on  pork $2,272.73  pays     2,000.00 

Company   C   insures  on   grain....    2,727.27  pays     2,500.00 

Totals    $5,000.00  $4,500.00 

Company  A  covers  $5,000  on  flour  and  lard.  I  apply 
the  rule  for  the  apportionment  of  the  compound  in- 
surance used  in  problems  No.  1  and  No.  3,  and  make 
it  cover  $3,181.82  on  lard,  consequently  the  remain- 
der, or  $1,818.18,  covers  on  flour.  A  and  B  are  made 
to  cover  $4,090.91  on  flour,  and  as  A  covers  $1,818.18 
on  flour,  B  must  cover  $2,272.73  to  make  $4,090.91,  the 
full  amount  of  insurance  on  flour.  Company  C  cov- 
ers $5,000  on  pork  and  grain.  It  is  made  to  cover 
$2,272.73  on  por^;  the  remainder,  or  $2,727.27,  must 
be  what  C  covers  on  grain.  B  and  C  cover  on  grain 
for  $5,454.54,  and  if  C  covers  $2,727.27,  B  must  cover 
$2,727.27  to  make  $5,454.54,  the  total  insurance  on 
grain.  This  as  you  will  see  is  not  a  complicated  ad- 
justment problem,  because  the  insurance  carried  by 
each  company  on  each  item  of  property  is  known 
when  the  total  insurance  on  each  item  of  property  is 
ascertained. 

Problem   No.  5. 

Company  A  covers  on  wheat $  2,500 

Company  A  covers  on  corn 3,000 

Company  A  covers  on  oats 2,000 

Company  B  covers  on  grain 5,000 

Company  C  covers  on  grain 6,000 

Total  insurance   $18,500 

Loss  on  wheat $  3,000 

Loss  on  corn 4,000 

Loss   on   oats 8,000 

Total  loss    $15,000 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  187 


OOOStH 


Ph        r^ 


CO<MC0 
COOCO 
C^  OOOi 


tH05C» 

oot-co 


oecjoo 
oooin> 

LOOOO 


oeocg 

O  t-05 

ooco 

CQiHr-T 


in 

0(MIO 
0(M0 

lO 

OOit- 

oo«o 

00 
?£> 

oo" 

e^ 

M- 

se- 

_,  M 


ooo 

ooo 

0U30 


O  OOO 

o  ooo 

la  ooo 

CO  U5CO«© 


o  ooo 
o  ooo 
o     ooo 


Sj.<ifq6        |<icq6 


S  C)  o  o  o 


fl  o  o  o 


w  o  o  o 

■30QO 

o 


188  THE  APPORTIONMENT  OF  LOSS  AND 

Company  A  insures  on  wheat $2,500.00  pays  $1,688.74 

Company  A  insures   on  corn 3,000.00  pays     2,233.58 

Company  A  insures  on  oats 2,000.00  pays     1,841.99 

Totals    $7,500.00  $5,764.31 

Company  B  insures  on  wheat $    882.35  pays  $    596.02 

Company  B  insures  on  corn 1,078.43  pays        802.92 

Company  B  insures  on  oats 3,039.22  pays     2,799.09 

Totals $5,000.00  $4,198.03 

Company  C  insures  on  wheat $1,058.83  pays  $    715,24 

Company  C  insures  on  corn 1,294.12  pays        963.50 

Company  C  insures  on  oats 3,647.05  pays     3,358.92 

Totals    $6,000.00  $5,037.66 

I  have  ascertained  the  insurance  covering  on  each 
item  of  property — wheat,  corn  and  oats — by  using  the 
same  rule  that  has  been  used  in  Problems  1,  3  and 
4.  Companies  B  and  C  have  $1,941.18  insurance  on 
wheat;  5,000/11,000  of  $1,941.18,  or  $882.35,  is  the 
amount  company  B  covers  on  wheat,  and  6,000/11,000, 
or  $1,941.18,  which  is  $1,058.83,  is  the  amount  Com- 
pany C  covers  on  wheat.  The  compound  insurance 
on  corn  and  oats  in  companies  B  and  C  is  divided 
the  same  as  I  have  apportioned  the  compound  insur- 
ance in  these  companies  on  wheat. 

Problem   No.  6. 

Company  A  covers  pork $  5,000 

Company  B  covers  pork  and  flour 5,000 

Company  C  covers  pork  and  grain 5,000 

Company  D  covers  pork,  flour  and  grain 5,000 

Total  insurance   $20,000 

Ix)ss  on  pork $10,000 

Loss  on  flour 3,000 

Loss   on  grain 5,000 

Total  loss    $18,000 

This  is  Griswold's  Statement  No.  19.  Mr.  Manning 
applied  "Rice's  Rule"  to  it  in  Problem  No.  2,  which 
please  examine  carefully  and  note  the  difference  in 
the  rule  used  by  him  and  the  one  I  have  applied: 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  189 


"^  00<X) 

o 

'  CO  t^ 

O 

cot- 

o 

o 

coco  Ut  00 

o 

coco 

O 

00  iH 

o 

o 

m 

CO<^OOrH 

o 

CO«D 

o 

M^IO 

o 

o 

>. 

CO  Tf  CO  CO 

o 

co«o 

o 

THLO 

o 

o 

a 

lOlC  t-i-( 

o 

OOt-I 

o 

00  tH 

o 

o 

ik 

"■^^Cq  i-(r-( 

o 

rHrH 

CO 

(M(M 

la 

00 

T-l 

&^ 

€/^ 

09- 

€^ 

m- 

so- 

€^ 

O  t-05CO 

o  t-ooc-q 


^  0^ 


CO  LO  O 

CO  "*  tH 

CO  CO  tH 

CO  OlO 

CO  rHCO 

co"  co'oq" 


oooo 
oooo 
oooo 


oo 
oo 
oo 


X  J. 

^^6666 

P4 


I  WP 


lop 


loo        i^OO 


M 

^" 

Tf 

coc^ 

lO 

ee- 

&9- 

o 

Ei^ 

CO       t- 

O 

co      «c 

o 

O 

s 

oo         CO 

o 

'ctf 

CO       «o 

o 

rH 

OO^         -r-l 

o^ 

^ 

^:o 

co" 

R 

p 

6^ 

€«- 

§ 

o 

^ 

S 

Cvl          ^ 

(M             T— I 

o 

CO 

o 

7J 

CO 

CO 

1— 1 

C^         -"d^ 

CO 

c:: 

C<r        r-l 

CO 

o 

ee- 

so- 

T^HOOCO 

o 

CO  CO  lo  oo 

o 

c 

J 

CO  CO  00  1-^ 

o 

oo-^coco 

o 

z 

03 

UO  US  t-  T— 1 

o 

< 

O 

•<*<(MtH  iH 

o 

e^ 

ee- 

H 

o 

s 

OOOIOCD 

o> 

O  t-lO  t- 

o 

<r^ 

dtr-^«o^ 

05 

CO 

(Ot-OlCO 

o 

O  tr-0O<M 

OJ 

lOirq  r-TrH 

o 

:z; 

€«- 

ee- 

M 

o 

"*<  COCOO 

o 

cococo  t- 

o 

3.i 

co'crico  CO 

o 

w 

o  5 

oo  t-COLO 

o 

lO^COlOTj* 

o 

H^ 

^O 

-*'■<*'"-*''■* 

oo 

P 

i-H 

P 

ae- 

«e- 

oooo 

o 

OOOO 

o 

O 

-M    *"* 

o^oo^o^^ 

o_^ 

U2 

£? 

uflOlOLft 

o" 

<PM 

€«- 

e9- 

^wop 

6  6  6  6 

o 

oooo 

H 

190  THE  APPORTIONMENT  OP  LOSS  AND 

Schedule  of  Insurance  and  Apportionment  of  Claim. 

There  are  in  this  problem  three  items  covered  by 
the  insurance — pork,  flour  and  grain.  The  maximum 
insurance  on  pork  is  $20,000,  because  four  $5,000  pol- 
icies cover  on  pork.  Deduct  from  this  $20,000  the 
maximum  Insurance  on  pork,  the  loss  on  pork  of 
$10,000  gives  a  maximum  over-insurance  of  $10,000. 
The  maximum  insurance  on  flour  is  $10,000  in  com- 
panies B  and  D  each  covers  for  $5,000  on  flour  and 
other  items.  Take  $3,000,  the  loss  on  flour,  from 
$10,000,  the  maximum  insurance  on  flour,  leaves  $8,- 
000  as  the  maximum  over-insurance  on  flour.  The 
maximum  insurance  on  grain  is  $10,000,  being  a  $5,- 
000  policy  in  each  company,  C  and  D.  This  $10,000, 
the  maximum  insurance  on  grain,  reduced  $5,000,  the 
loss  on  grain,  leaves  $5,000  as  the  maximum  over- 
insurance  on  grain. 

The  maximum  insurance  on  any  item  is  the  full 
amount  that  could  be  made  to  contribute  to  pay  a 
loss  on  the  item.  In  this  case,  if  the  loss  was  all  on 
pork  and  was  $20,000  or  more,  the  four  companies 
would  pay  a  total  loss.  In  other  words,  there  is  $20,- 
000  of  insurance  that  could  be  called  on  to  pay  a  loss 
on  pork.  There  is  $10,000  of  insurance  that  could  be 
made  to  pay  a  loss  on  flour,  and  also  $10,000  that 
could  be  made  to  pay  a  loss  on  grain. 

The  total  maximum  over-insurance  is  shown  to  be 
$22,000.  In  making  the  distribution  of  the  actual 
over-insurance,  we  get  10,00V22,000  of  $2,000,  or 
$909.09,  as  covering  on  pork.  Add  to  $909.09  the  loss 
on  pork  of  $10,000,  gives  us  a  total  insurance  on  pork 
of  $10,909.09.  We  have  7,000/22,000  of  $2,000,  the 
actual  over-insurance,  or  $636.36  covering  on  flour. 
Add  $3,000,  the  loss  on  flour,  to  $636.36,  gives  $3,- 
636.36  as  the  total  insurance  on  flour.  The  loss  on 
grain  is  $5,000,  which  added  to  5,000/22,000  of  $2,000, 
the  actual  over-insurance,  or  $454.55,  gives  us  $5,- 
454.55  as  the  total  insurance  on  grain. 

Apportionment   of   Insurance  to   Companies. 

By  the  flrst  apportionment  of  the  compound  insur- 
ance on  each  item  of  property  to  companies,  I  get  the 
following: 

Pork.  Flour.  Grain. 

Company   A   insures.. $  5,000.00 
Company    B    insures.  .      3,095.24  $1,904.76 

Company    C    insures..      2,600.00  $2,400.00 

Company   D    insures..      1,969.70  1,212.12  1,818.18 


Totals    $12,664.94  $3,116.88  $4,218.18 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  191 

The  total  insurance  on  pork  is  $10,909.09,  and 
$5,000  of  this  is  in  company  A  and  is  specific.  The 
compound  insurance  covers  $5,909.09  on  pork,  $3,- 
636.36  on  flour,  and  $5,454.55  on  grain.  Company  B 
covers  on  pork  and  flour  for  $5,000.  I  apportion  the 
$5,000  insurance  in  company  B  to  pork  and  flour,  on 
the  following  basis — that  is,  as  the  compound  insur- 
ance on  each  item  bears  to  the  compound  insurance 
on  both  items,  590,909/954,545  of  $5,000  is  $3,095.24, 
which  is  the  insurance  on  pork  in  company  B;  363,- 
636/954,545  of  $5,000  is  $1,904.76  and  this  is  the 
insurance  on  flour  in  company  B.  Company  C  covers 
$5,000  on  pork  and  grain.  I  make  590,909/1,136,364 
of  $5,000,  that  is,  $2,600,  to  cover  on  pork,  and  545,- 
455/1,136,364  of  $5,000,  or  $2,400,  cover  on  grain.  Com- 
pany D  have  $5,000  covering  on  pork,  flour  and  grain. 
590,909/1,500,000  of  $5,000  is  $1,960.70,  which  is  the 
amount  company  D  covers  on  pork;  363,636/1,500,000 
of  $5,000  is  $1,212.12  and  this  is  the  amount  com- 
pany D  covers  on  flour,  and  545,455/1,500,000  of  $5,000 
is  $1,818.18,  which  is  the  amount  company  D  covers 
on  grain. 

Re-Apportionment  of  Insurance  to  Companies. 

The  first  apportionment  of  insurance  to  compan- 
ies on  pork  gives  us  $12,664.94  when  there  is  only 
$10,909.09  total  insurance  on  the  item  in  all  compan- 
ies. We  get  therefore  $1,755.85  more  insurance  on 
pork  than  there  actually  is  on  it,  and  this  amount 
must  be  transferred  to  some  other  item  or  items, 
where  there  is  a  shortage.  The  actual  insurance  on 
flour  is  $3,636.36  and  the  first  apportionment  of  in- 
surance to  companies  gives  us  $3,116.88.  There  is  a 
shortage  here  of  $519.48  which  must  be  taken  from 
the  insurance  on  pork  in  companies  B  and  D.  There 
is  $5,064.94  in  companies  B  and  D  on  pork.  Com- 
pany B  has  $3,095.24  of  it  and  we  take  309,524/506,- 
494  of  $519.48  or  $317.46  from  the  $3,095.24  insurance 
in  company  B  on  pork,  and  add  it  to  $1,904.76,  the 
insurance  in  company  B  on  flour.  This  gives  us 
$2,777.78  insurance  on  pork  and  $2,222.22  insurance 
on  flour  in  company  B.  We  take  from  company  D 
which  has  $1,969.70  on  pork  196,970/506,494  of 
$519.48  or  $202.02  and  add  it  to  $1,212.12,  the  amount 
company  D  covers  on  flour  under  the  first  appor- 
tionment, and  it  gives  us  $1,414.14  as  the  total  in- 
surance company  D  covers  on  flour.  There  is  a  short- 
age of  insurance  in  companies  C  and  D  on  grain 
under  the  first  apportionment  of  insurance  to  com- 


192  THE  APPORTIONMENT  OF  LOSS  AND 

panies  of  $1,236.37.  This  amount  must  be  taken  from 
the  insurance  apportioned  under  the  first  apportion- 
ment on  pork  in  these  companies.  Company  C  has 
$2,600  and  company  D  $1,969.70,  making  a  total  of 
$4,569.70.  260,000/456,970  of  $1,236.37  is  $703.45, 
which  deducted  from  the  $2,600  insurance  under  the 
first  apportionment  in  company  C  on  pork  leaves 
$1,896.55  actual  insurance  on  pork  in  company  C. 
This  $703.45  taken  from  the  insurance  under  the 
first  apportionment  in  company  C  on  pork  and  added 
to  the  $2,400  in  this  company  under  the  first  appor- 
tionment on  grain,  makes  the  actual  insurance  in 
company  C  on  grain  $3,103.45.  196,970/456,970  of 
$1,236.37  is  $532.92,  which  is  the  amount  of  insurance 
in  company  D  under  the  first  apportionment  of 
insurance  to  companies  covering  on  pork,  and  trans- 
ferred to  the  insurance  on  grain.  This  makes  the 
actual  insurance  on  grain  $2,351.10  in  company  D. 
We  have  taken  from  the  $1,969.70  insurance  on  pork, 
under  the  first  apportionment  $202.02  and  added  it 
to  the  insurance  on  flour,  and  $532.92  which  has 
been  added  to  the  insurance  on  grain,  making  a 
total  of  $734.94  deducted,  which  leaves  the  actual  in- 
surance on  pork  in  company  D  $1,234.76. 

Problem   No.  7. 

Company  A  covers  pork $5,000 

Company  B  covers  pork  and  flour 5,000 

Company  C  covers  pork  and  grain 5,000 

Company  D  covers  pork,  flour  and  grain 5,000 

Total  insurance $20,000 

Loss  on  pork $5,000 

Loss  on  flour 8,000 

Loss  on  grain 5,000 

Total  loss $18,000 

This  is  Griswold's  statement  No.  19,  with  the  loss 
on  pork  changed  from  $10,000  to  $5,000  and  the  loss 
on  flour  changed  from  $3,000  to  $8,000. 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  193 


<5  > 


0<MO(NJ 


o  ?oco 

o  toco 

o  <x>co 

OO"  CCtH 


0-* 

OTt* 


oooo 
oooo 
oooo 

lOLOlO  to 


OO 
OO 
OO 


OO 
OO 

OO 


i^^il  6  6  6  6 


IMP 


■  3  O  O 

oOO 


OQ 


•S  o  o 

goo 


O 

o 


O 

P^ 

o 

o 

5 


coco 

(;OCO 

tcco 


o 

o 

CD 

■"^l 

^ 

00 

r^ 

(M 

<Xi 

CO 

»*i 

CO 

€^ 

.     lO  CO  t-  r-, 

.S    M  I-  00  '-' 
Cv3    OiiHt-TH 


o 


CO 


0(Moeq 

OMO-^ 
j^  oddrH 
ili  OCqO'^H 
^    0<M  OiH 


t>-oooi« 

o 

o 

ItS 

locq  cooo 
00  CO  <ri  c<i 

o 
o 

H 

o  d 

c^^iot- 

o 

C^OOlO  c- 

o 

J 

^O 

co^Tf^-rir^ 

OQ 

P 

P 

«©■ 

«e- 

2| 

OOOO 

o 

HH  ' 

OOOO 

o 

o 

oooo 

'  o 

02 

So 

lO  LO  U5  ^ 

o"^ 

<?:&. 

eo- 

©9- 

<iipQ6p 

iS 

dodo 

p 

oooo 

194  THE  APPORTIONMENT  OF  LOSS  AND 


The  total  insurance  on  each  item  of  property  has 
been  ascertained  in  the  same  way  it  was  found  in 
problems  1,  3,  4,  5  and  6.  The  first  apportionment  of 
insurance  to  companies  gave  the  following  results: 

Pork.  Flour.  Grain.    . 

Company   A   insures.  .  .$5,000.00 
Company   B    insures...       714.29         $4,285.71 
Company    C    insures...    1,000.00  $4,000.00 

Company   D    insures...       454.55  2,727.27  1,818.18 


Totals    $7,168.84  $7,012.98  $5,818.18 

An  examination  will  show  that  $7,168.84  is  $805.20 
more  than  $6,363.64,  the  actual  insurance  in  all  com- 
panies on  pork.  It  will  also  show  that  $7,012.98  is 
$1,168.84  less  than  $8,181.82,  the  actual  insurance  in 
all  companies  on  flour.  The  actual  insurance  in  all 
companies  on.  grain  is  $5,454.54,  and  as  the  first 
apportionment  of  insurance  to  companies  on  this 
item  is  $5,818.18  there  is  an  excess  of  insurance  of 
$363.65  here,  which  must  be  transferred  to  flour. 
The  excess  insurance  of  $805.20  on  pork  must  be 
transferred  to  flour  to  make  good  the  shortage  of 
$1,168.84.  These  two  items  of  over-insurance  on 
pork  and  grain  are  transferred  to  flour,  by  applying 
the  same  rule  used  in  problem  No.  6,  as  fully  ex- 
plained under  the  heading  "Re-Apportionment  of 
Insurance  to  Companies." 

Problem  No.  8. 

Company  A  covers  on  pork,  flour  and  grain $   5,000 

Company  B  covers  on  flour,  grain  and  fruit 5,000 

Company  C  covers  on  grain,  fruit  and  pork 5,000 

Company  D  covers  on  fruit,  pork  and  flour 5,000 

Total  insurance   $20,000 

Loss  on  pork $10,000 

Loss  on  flour 3,000 

Loss  on  grain 4,000 

Loss  on  fruit 1,000 


Total   loss $18,000 

This  adjustment  problem  differs  from  the  others, 
as  each  policy  covers  three  different  items  of  prop- 
erty and  no  two  forms  are  alike. 


CONTRIBUTION  OF  COMPOUND  INSURANCE.  195 


^ 

P^ 


oeoia 

CO  CO  CO 


ococi 


o  . 

o 

LO00«>- 

o 
o 

co" 

05  0© 

€/3- 

ee- 

tHCOUS 


(MOt- 

«D00«O 

M 

OSr-ieo 

t-00O> 


la     o  CO  th 


«oco«o 

CD 

CO  ■^00 

00  eo"* 

CD 

to 

«D 

IH 

««- 

€«- 

o 


!^  0) 


ooo 
ooo 
ooo 


ooo 
ooo 
ooo 


ooo 
ooo 
ooo^ 


o  ooo 
o  ooo 
o     ooo 


^    .  .  . 


3  c)  6  6 
oUOO 


.5  d  6  d 
ceooo 


I  WOQ 


.tl  d  d  d 

?ooo 


196  THE  APPORTIONMENT  OF  LOSS  AND 

Company  A  insures  on  pork $3,159.62   pays   $3,086.14 

Company  A   insures   on  flour 797.47   pays         669.87 

Company   A   insures    on   grain....    1,042.91  pays         922.15 

Totals    $5,000.00  $4,678.16 

Company   B   insures  on   flour $1,829.27   pays  $1,536.59 

Company  B  insures  on  grain 2,317.07   pays     2,048.78 

Company   B   insures  on   fruit 853.66   pays         512.20 

Totals $5,000:00  $4,678.16 

Company  C  insures   on   pork $3,441.80  pays  $3,361.76 

Company  C  insures  on  grain 1,163.83  pays     1,029.07 

Company  C  insures  on  fruit 394.37  pays        236.62 

Totals    $5,000.00  $4,627.45 

Company  D  insures  on  pork $3,636.67  pays  $3,552.10 

Company  D  insures  on   flour 944.69  pays         793.54 

Company  D  insures  on^  fruit 418.64  pays        251.18 

Totals $5,000.00  $4,596.82 

This  is  a  complicated  adjustment  problem,  and 
I  believe  the  application  of  any  rule  for  the  appor- 
tionment of  compound  insurance  to  it,  will  furnish  a 
thorough  and  practical  test  of  the  rule. 

The  insurance  on  each  of  the  four  items  of  prop- 
erty is  ascertained  by  applying  the  same  rule  that 
has  been  used  in  problems  1,  3,  4,  5,  6  and  7.  The 
maximum  insurance  on  each  item  of  property  is 
$15,000.  After  deducting  the  loss  on  each  item,  from 
the  maximum  insurance  thereon,  we  have  a  maxi- 
mum over-insurance  on  pork  of  $5,000,  on  flour  of 
$12,000,  on  grain  of  $11,000  and  on  fruit  of  $14,000, 
which  makes  a  total  maximum  over-insurance  of 
$42,000.  The  actual  insurance  on  the  four  items  of 
property  is  $20,000  and  the  total  loss  thereon  is 
$18,000,  leaving  the  actual  over-insurance  $2,000. 
This  actual  over-insurance  is  apportioned  to  each  of 
the  four  items  of  property,  in  the  ratio  that  the  max- 
imum over-insurance  thereon  bears  to  the  total  max- 
imum over-insurance.  5,000/42,000  of  $2,000  to  pork, 
12,000/42,000  of  $2,000  to  flour,  11,000/42,000  of 
$2,000  to  grain  and  14,000/42,000  of  $2,000  to  fruit. 
The  actual  over-insurance  apportioned  to  the  four 
items  of  property  is  as  follows: 

Pork $238.09 

Flour 571.43 

Grain 523.81 

Fruit 666.67 

Total $2,000.00 


CONTRIBUTION  OP  COMPOUND  INSURANCE.  197 

The  loss  on  each  item  of  property  added  to  the  act- 
ual over-insurance  thereon,  gives  the  total  insurance, 
which  is  as  follows: 

Insurance  on  pork $10,238.00 

Insurance  on  flour 3,671.43 

Insurance  on  grain 4,523.81 

Insurance  on  fruit 1,666.67 

Total    $20,000.00 

Apportionment  of  Insurance  to  Companies. 
The   following  result   is   obtained  by   the  first  ap- 
portionment of  insurance  on  each   item  of  property 
to  the  companies: 

Pork     $  238.09 

Flour     571.43 

Grain 523.81 

Fruit    666.67 

Total    $2,000.00 

Insurance    on    pork $10,238.00 

Insurance  on  flour 3,671.43 

Insurance  on  grrain 4,523.81 

Insurance  on  fruit 1,666.67 

Total    $20,000.00 

Pork.  Flour.  Grain.  Wheat. 

Co.    A   insures.  .  .$2,792.20  $     974.03  $1,233.77 

Co.   B   insures...  1,829.27        2,317.07  $    853.66 

Co.    C   insures...    3,115.94                              1,376.81  507.25 

Co.   D  insures...    3,307.69  1,153.85  538.46 

Totals    $9,215.83      $3,957.15      $4,927.65      $1,899.37 

The  actual  insurance  apportioned  to  pork  is  $10,- 
238.09.  We  therefore  have  a  shortage  of  $1,022.26. 
There  is  an  over-insurance  on  flour  of  $385.72,  on 
grain  of  $403.84  and  on  fruit  of  $232.70,  which  makes 
a  total  over-insurance  on  these  three  items  of  prop- 
erty of  $1,022.26.  This  is  the  same  amount  that  the 
insurance  on  pork  is  short. 

Re-Apportionment  of  Insurance  to  Companies. 

The  over-insurance  in  companies  covering  flour, 
grain  and  fruit  which  also  cover  pork  is  apportioned 
to  pork  separately  from  each  item  in  the  ratio  that 
the  insurance  in  each  company  on  each  item  or 
division,  under  the  first  apportionment  of  insurance 
to  companies,  bears  to  the  total  of  said  insurance 
thereon. 

The  insurance  on  flour,  under  the  first  apportion- 
ment of  insurance  to  companies  gives  company  A 
$974.03  and  company  D  $1,153.85,  making  a  total  in 


198  THE  APPORTIONMENT  OF  LOSS  AND 

the  two  companies  covering  on  flour  of  $2,127.88. 
We  have  $385.72  excess  insurance  on  flour  under  the 
first  apportionment  of  insurance  to  companies  in 
companies  A  and  D,  which  must  be  transferred  to 
pork.  97,403/212,788  of  $385.72  is  $176.56  and  this 
is  added  to  the  insurance  in  company  A  on  pork. 
115,385/212,788  of  $385.72  is  $209.16,  which  is  trans- 
ferred from  the  insurance  in  company  D  on  flour 
under  the  first  apportionment  of  insurance  to  pork. 
Company  A  now  has  $797.47  and  company  D  $944.69 
on  flour.  We  take  123,377/261,058  of  $403.84,  the 
excess  insurance  under  the  first  apportionment  of 
insurance  to  companies  in  companies  A  and  C  on 
grain,  which  is  $190.86  and  add  it  to  the  insurance 
on  pork.  137,681/261,058  of  $403.84  is  $121.98,  which 
is  the  excess  insurance  on  grain  under  the  first 
apportionment  of  insurance  to  companies,  in  com- 
pany C,  transferred  from  grain  to  pork.  We  now 
have  $1,042.91  insurance  in  company  A  and  $1,163.83 
insurance  in  company  C  covering  on  grain.  The  $232.70 
excess  insurance  in  companies  C  and  D  covering  on 
fruit  under  the  first  apportionment  of  insurance  to 
companies  is  transferred  to  pork;  50,725/104,571  of  it, 
or  $112.88  from  company  C  and  53,846/104,571  of  it, 
or  $119.82  from  company  D.  This  leaves  $394.37  in 
company  C  and  $418.64  in  company  D  covering  on 
fruit.  The  total  insurance  on  pork  now  in  company 
A  is  $3,159.62,  in  company  C  $3,441.80  and  in  company 
D  $3,636.67,  making  a  total  of  $10,238.09. 

The  application  of  this  rule  as  you  read  this,  may 
appear  to  be  very  complicated,  but  it  is  not.  If  you 
keep  your  work  in  proper  form  on  your  working 
sheets,  you  will  find  it  to  be  as  simple  as  any  prob- 
lem of  proportion. 

This  rule  may  be,  and  probably  is,  like  Rice's 
Rule  and  all  the  other  rules,  more  faulty  than  the 
Kennie  Rule,  but  I  have  made  many  applications  of 
it,  and  it  has  produced  satisfactory  results. 

I  favor  the  "Finn  Rule" — later  known  as  the 
"Griswold  Rule,"  and  now  known  as  the  "Kinne 
Rule.'*  It  makes  the  compound  insurance  spe- 
cific on  the  basis  of  the  loss.  It  provides  for  a  re- 
apportionment if  it  is  necessary  and  also  a  re-re-ap- 
portionment, if  the  assured  has  insurance  equal  to  or 
greater  than  this  loss,  until  his  full  loss  is  paid. 

The  ''Kenne  Rule"  has  its  faults,  but  it  is  equita- 
ble and  susceptible  of  general  application,  and  pro- 
tects the  assured  to  the  full  extent  of  the  policies. 


TABLE  OF  CASES. 
Cases  Cited — 

Angebrodt  &  Barth  v.  Delaware  M.  Ins.  Co., 

31  Mo.  593 7 

Bardwell  v.  Conway  Mutual  Fire  Ins.  Co.,  118 

Mass.  465 114 

Blake  v.  Ins.  Co.,  12  Gray  272 32 

Chisborough  v.  Home  Ins.  Co.,  61  Mich.  333. .  114 
Christian  v.  Niagara  Fire  Ins.  Co.,  101  Ala. 

634   114 

Continental  Ins.  Co.  v.  Aetna  Ins.  Co.,  138  N. 

Y.  16 107 

East  Texas  Fire  Ins.  Co.  v.  Coffee,  61  Texas 

287 114 

Erb  V.  Ins.  Co.  (Iowa),  69  N.  W.  Rept.  263..  15 
Good  V.  Buckeye  M.  F.  Ins.  Co.,  43  Ohio  St. 

394  114 

Haley  v.  Dorchester  M.  F.  Ins.  Co.,  12  Gray 

545    114 

Herr  v.  Greenwich  Ins.  Co.,  20  Fa.  Sup.  Ct. 

169 28 

Howard  Ins.  Co.  v.  Scribner,  5  Hill  208 5 

Liscom  V.  Boston  Fire  Ins.  Co.,  9  Met.  205.  .  .  59 
L.  and  L.  and  G.  Ins.  Co.  v.  Verdier.  35  Mich. 

395 113 

Mayer  v.  American  Ins.  Co.,  18  Ins.  Law  Jour- 
nal 156  52 

Merrick  v.  Ins.  Co.,  64  Pa.  St.  277 13 

Ogden  V.  Ins.  Co.,  50  N.  Y.  388 33 

Oskosh  Gas  Light  Co.  v.  Germania  Ins.  Co., 
71  Wis.  457 113 

Cases  Cited — Decisions  Given — 

Armour  Packing  Co.  v.  Reading  Fire  Ins.  Co., 

57  Mo.  App.  215 91 

Chandler  v.  Ins.  Co.  of  N.  Am.    (Vermont), 

41  Atlantic  Rept.   502 17 

Cromie  v.  Kentucky  &  Louisville  Ins.  Co.,  15 

B.  Moroz  Ky.  432 58 

Farmers  Feed  Co.  v.  Scottish  Union  &  Natl. 

Ins.  Co.,  173  N.  Y.  241...., 101 

Grollimund  v.  Germania  Fire  ins.  Co.  (N.  Y.), 

83  Atlantic  Rept.   1108 

Lesure  Lumber  Co.  v.  Mutual  Fire  Ins.  Co. 

(Iowa),  70  N.  W.  Rept.  761 23 

Page  Bros.  v.  Sun  Ins.  Office  (U.  S.  C.  C.  of 

of  A.),  25  Ins.  Law  Journal  865 10 

Schmaelzle  v.  Lon.  &  Lan.  Ins.  Co.   (Conn.), 

53  Atlantic  Rept.   841 

Sherman  v.  Madison  M.  Ins.  Co.,  39  Wis.  104  79 
Stephenson   et   al.   y.    Agricultural   Ins.    Co., 

116  Wis.  277 108 


INDEX. 

Page 

Albany    Rule    39 

"Amount    Insured" — meaning 89 

Average  Clause — Co.  Ins.  Form 88 

Average   Clause — Distribution  Form 17 

Chicago  Rule    24 

Co.-Ins.  Clauses   86 

Cromie  Rule  57 

Eighty   Per  Cent.   Co-Ins.   Clause 86 

English    Rule    39 

Excess   Insurance    15 

Full  Co-Ins.  Clause 88 

Griswold   Rule    52 

Hartford  Rule    23 

Insurance  Contract   8 

Kinne  Rule 53 

Limitation  Clauses   68 

Live    Stock — Co-Ins.    Clause 89 

Live   Stock — Limitation  Clause 72 

Maximum  Amount  at  Risk 42 

Pro-rata  Contribution  Clause 8 

Reading  Rule   7 

Rice's  Rule   157 

Rice-Daniels'   Rule    173 

Three-Fourth    Loss    Clause 71 

Three-Fourth  Value  Clause 70 

"Total    Insurance" — meaning 39 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


AN  INITIAL  FINE  OF  25  CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  50  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $1.00  ON  THE  SEVENTH  DAY 
OVERDUE, 


MAR  27    1934 


NOV    5    193S 


MAY    9   1945 


^ 


sfk^ 


^RECEIVED 


ww^ 


LOAN  DEPn 


"Spr 


4310 


5t 


PECEWEP 


Vii^lO'70-3 


LD  21-100m-7,'33 


YA  03413 


5456JH 


UNIVERSITY  OF  CAUFORNIA  LIBRARY 


